Landmark 21-country study confirms mental accounting shapes how we spend

Traditional economics has long assumed that a dollar is a dollar. Whether you found it on the street, earned it through overtime or received it as a holiday gift, money should all spend the same. But anyone who has ever hoarded a gift card while paying other bills with a credit card knows that human beings don’t actually think about money the way we’d like to. Or the way the textbooks say. 

Enter ‘mental accounting’, one of the most influential and fundamental concepts in behavioural economics. It seeks to explain our financial choices by suggesting that humans use invisible mental budgets when making decisions. This quirk can heavily distort how we assign value, leading us to see savings of £5 on a £10 item as a massive win, while completely brushing off the exact same £5 savings when buying a £100 item. 

Richard Thaler, who pioneered the original research, used mental accounting as one of the primary building blocks of nudge theory, an idea that has gone on to have a monumental impact on policy and behaviour around the world.

Putting the classics to the test 

Despite its massive influence, much of the original research on mental accounting had never been formally replicated on a large scale. 

To change that, a team of researchers from the University of Padova in Italy directed a massive global collaboration of over 100 researchers spanning 21 countries. The team was led by Professor Enrico Rubaltelli, Dr Giulia Priolo, Dr Martina Vacondio and former affiliate of the Centre for Business Research (CBR) Dr Federica Stablum (now at University College London). Also among the key contributors to this landmark effort was behavioural scientist Dr Kai Ruggeri, Founder and Director of the Policy Research Group in the CBR at Cambridge Judge Business School. 

What the global study found

Published in the Journal of Consumer Research, the new study put over 5,000 participants from 21 countries through classic mental accounting scenarios to see if the original theories still stand up. 

The results show that the core principles of mental accounting continue to hold true and that our mental money habits are remarkably consistent around the globe. When the context shifts, the exact same financial amount can be perceived completely differently, ultimately changing our behaviour. For instance, the study highlighted how people are far more likely to overspend on a beer if it is purchased from a fancy location compared to spending that exact same price at a seemingly less impressive store. 

Rather than treating every pound or dollar as equal, people naturally sort their cash into invisible mental folders depending on where it came from and what it is meant to buy. When the background details of a situation change, our perception of value shifts right along with it. 

To see this in action, the researchers looked at several familiar scenarios:

Ultimately, the findings showed that these quirky human habits appear everywhere, though the strength of the effect shifts a bit depending on local economic conditions. 

Why it matters today

These aren’t just quirky laboratory findings: they have major implications for businesses, policymakers and individual consumers alike. 

As everyday banking and purchasing habits continue to shift toward digital apps and smartphones, this research offers a vital reality check. It proves that while our payment methods change, our underlying human psychology remains remarkably consistent – reminding us that the mental budgets we keep will always shape how we navigate the world of money.