Abstract:

Predicting the behaviour of market participants is one of the main goals of standard economic theory which rely on the assumption that people are rational. As market participants do not always behave in accordance with these theoretical assumptions, a new approach to this goal was offered by behavioural economics. This discipline recognizes human flaws, shortcomings and limited rationality. The growing importance of this discipline, recently awarded with Nobel Prize, provided the motivation for writing this paper, which focuses on a specific area of behavioural economics known as mental accounting. Mental accounting studies economic decision-making, the perception of gains and losses, spending and saving preferences and risk aversion, from the perspective of human irrationality.