AP MicroeconomicsBehavioral Economics
Mental Accounting
Mental accounting is the tendency to sort money into separate mental 'buckets' and treat it differently depending on its source or intended use.
Coined by Richard Thaler, mental accounting describes how people violate the economic principle that money is fungible (one dollar equals any other dollar). They may splurge a tax refund while refusing to dip into savings, or keep a vacation fund untouched while carrying credit-card debt. These labels help self-control but lead to choices a fully rational agent would not make.