Money 2.0: Why We Bust Our Budgets
Hidden Brain
00:00
The Third Form of Mental Accounting Is Ratio Effects
A third form of mental accounting has to do with something called ratio effects. Most people were willing to travel ten minutes to a different store to save five dollars on a 25 dollar clock radio, but they would not drive the same distance to save the same 5 dollars on a 500 dollar television set. You don't really know what five dollars should be worth in terms of your time and so you have to look to the context to try to figure that out.
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