A Challenge to Mental Accounting Theory


The basic research idea is to challenge the mental accounting theory, which states that a consumer does not realize that their choice is not reasonable, caused by common human behavioral patterns. The theory argues that a human being is not rational, which is an explanation of the recent conventional consumption theory, as to why credit card debt default is happening.

However, there could be other reasons as to why consumers fail to pay back their debt. For example, financial policy perspective, two different credit card default systems, and even users realizing that there are no systemic structures that solve the default.

Core to the research will be CC debt defaulter’s level of cognitive power about their situation in every stage.


Research Structure

The research will be empirical, and will examine Australian credit card (CC) debt defaulter’s awareness of their decision making process.

The research structure will be based on a survey of Australian CC debt defaulters. Essential to this research would be organizing survey questions and approaching the sample population. However, I personally saw some social science survey service in Melbourne University online site, but did not know about the detail, but still can be explored. Furthermore, I could do the research by myself.

If the results turn out to be positive, which would mean that CC debt defaulters know that their choice would result in bankruptcy, the mental accounting theory will be rejected. Here, the research can be extended to find out more reasons regarding why the consumers make their decisions the way they do.

However, where the results are negative, which would mean that CC debt defaulters did not know that they were making financial mistakes; this will be proof that any credit default would be mainly a personal mistake, and this matches the recent conventional economic consumption theory.

Based on the results of the survey, the researcher will be able to analyze and conclude their hypothesis. Furthermore, the researcher can extend their research in areas like detecting the external reasons that force one to go into bankruptcy.

Past Research Examples

Finding examples of research in the area under investigation was one of the difficulties experienced when writing this outline. The reasons are that it was not easy to find the exact same kind of research, as regards the mental accounting approach, that focused on Australian CC debt defaulters. I am anticipating that some Australian banks might have a similar, internal survey about CC defaulters, but not officially disclosed.

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Literature Review

Before starting the literature review, it is important to mention the founder of the mental accounting theory, Richard Thaler. Richard Thaler attained his PhD under the supervision of the American labor economist, Sherwin Rosen, but currently associates in Chicago University. It is still debatable whether or not Richard Thaler should be classified as a conventional economist, not only because of the ideological position of his PhD supervisor, but also the basic idea of the mental accounting theory. Traditionally, conventional economists define a consumer as a rational decision maker, rather than somebody who has a mental weakness. However, the theory argued that the character of a consumer is not always rational.

Mental accounting appears in Thaler’s work in 1985, titled “Mental accounting and consumer choice”. In the article, credit card has been mentioned two times. For example in p.202, ‘cording gains and losses’ to explain the multifold time of repeat causing reduced huge losses in the end, and the explanation integrates loss in p.209. In his 1998 work, ‘Mental accounting of saving and debt’, credit card is mentioned as a tool for mass debt creating product (p15). Furthermore, regarding researching debt coupling, credit card has been used as an example. It is further explained that different consumer awareness’s levels concerning spending depends on credit card payment. Credit card as an example of decoupling payment also appears in another article, in Ran Kivetz (1999), “advances in research on mental accounting and reason- based choice”.

There is also another article by Ranyard et al. (2006), where the authors researched credit payment as well. The research is UK-based, and uses a scenario-based model with interviews administered on a sample population of 95 consumers. Based on the article’s results, it can be a model paper partially for my research.

To sum up, it is difficult to find a research article online, similar to my research idea, but I am doing more research to find more articles to further develop the idea. Furthermore, in the literature review, still I cannot find articles specifically related to debt defaulter’s choices.


Rob Ranyard, Lisa Hinkley, Janis Williamson, and Sandie McHugh 2006 “Role of consumer credit and mental accounting” Journal of Economy Phycology p.18.

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