Have you ever heard of someone use the phrase, “free money”? They may have a tendency to freely spend that “free money” because they see it as somehow different than any other type of money. Money is fungible (meaning $1 in income has the same value as $1 in inheritance). But we humans may not see it as such.
In my latest column for The Globe and Mail, I spoke with Professor Dilip Soman, the director of BEAR (Behavioural Economics in Action at Rotman) at the University of Toronto* about “mental accounting”, a topic that he has studied extensively over his career that can help explain this predictably irrational behaviour.
Dr. Soman provides some advice at the end of the column for how you can use mental accounting to your advantage.
*Disclosure: I am a member of the governing council of UofT.