Have you ever lost something valuable and wondered whether you would be willing to replace it at the same cost? Would your decision change if it came from a different account in your mind? These are questions that economist Richard Thaler explored in his research on mental accounting. The concept of mental accounting suggests that we have different mental accounts for different things, and it influences our decision-making processes.
To illustrate this concept, let’s take a look at two scenarios. In scenario one, imagine that you have already paid $100 for a ticket to a concert. However, when you arrive at the concert hall, you realize that you have lost your ticket. Would you spend another $100 to get a new ticket? According to Thaler’s research, only 45% of people would purchase a new ticket in this scenario.
In contrast, consider scenario two. You are going to the concert tonight, but you have not yet purchased a ticket. When you arrive at the box office, you notice that you have lost $100 cash. Would you spend $100 on the concert ticket? Thaler found that almost 88% of people would buy a new ticket in this scenario.
So why do people behave differently in these two scenarios? The answer lies in the concept of mental accounting. In the first scenario, we have already spent money from our “concert account,” so we are unlikely to pay for it again. However, in the second scenario, the money lost comes from our cash account, which has no effect on the concert account. Therefore, most of us are willing to buy a new ticket in spite of our earlier loss.
This effect of mental accounting can be used in UI/UX design to improve the conversion rate of products. To do this, designers can target the mental account that has the biggest budget. For example, the DeBeers slogan “a diamond is forever” cleverly redefines a diamond ring as a necessity for romance and emotions. This means that instead of the “luxury goods account,” a husband will take money from the “romance account,” which has a significantly higher budget.
Designers can also target other mental accounts such as beauty account, self-fulfillment accounts, friendship accounts, and even manhood or womanhood accounts. By creating products or services that align with these mental accounts, designers can increase the perceived value of the product, and customers will be more willing to pay for it.
In conclusion, mental accounting is a powerful concept that can influence our decision-making processes. By understanding and utilizing this concept, designers can create products and services that appeal to the mental accounts with the biggest budgets, ultimately leading to increased sales and conversions.