Mental accounting, heuristics, and the second‐best: Solving the calculator‐jacket puzzle

This paper conceives mental accounting along Kahneman's “mental economy,” specifically as a heuristic. This mental‐accounting‐as‐heuristic conception allows us to solve the calculator‐jacket puzzle. The opportunity cost of time is not constant but roughly varies with the variation of the item&#...

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Bibliographic Details
Published in:Managerial and decision economics 2024-06, Vol.45 (4), p.2415-2427
Main Author: Khalil, Elias L.
Format: Article
Language:English
Subjects:
Accounting
Heuristic
Measurement
Value
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Summary:This paper conceives mental accounting along Kahneman's “mental economy,” specifically as a heuristic. This mental‐accounting‐as‐heuristic conception allows us to solve the calculator‐jacket puzzle. The opportunity cost of time is not constant but roughly varies with the variation of the item's value. As the value of the item rises, the decision maker (DM) should be more attentive. However, the measurement of the opportunity cost of time at each point of purchase is cognitively costly. To reduce such cost, the DM adopts a heuristic, the item's price itself, as a rough proxy of the varying opportunity cost of time.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.4135