When integration works better than segregation does in multiple-gain situations: The revised coding rules in mental accounting

Chia-Chi Chang*, Po Yu Chen

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Mental accounting based on the S-shape value function in prospect theory has been widely accepted since it was posited. The coding rules in mental accounting (CRMA) further suggest that segregating gains in multiple-gain situations and aggregating losses (to one big loss) in multiple-loss situations are preferred. CRMA have been then successfully applied to many fields. However, in our daily life, we can find occasions when people tend to aggregate gains in multiple-gain situations (accumulate small money from colleagues for a bigger wedding gift) or segregate losses in multiple-loss situations (phase a monthly donation amount to a smaller daily amount). The only study to date showing experiment results conflicting to CRMA, though, focuses on comparing the utility losses of two losses that happen on the same day and on different days. In this study, in order to resolve the inconsistency, we replicate Thaler's experiments with different dollar amounts used in both gain and loss scenarios and propose that mental threshold could be the major reason why in some situations CRMA may not be applicable. Our results show that in multiple-gain (or multiple-loss) situations, CRMA reverse when the accumulated gain (or loss) is over people's mental threshold while the individual gains (or losses) are not. Another finding is that in prior-gain or prior-loss situations, the original reference points can serve as a natural mental threshold. When the accumulated gain (or loss) of multiple gains (or losses) is over the original reference point (anchored by prior gains or losses) while the individual gains (or losses) are not, our experiment results show that people's preference on segregating gains and aggregating losses is reduced.

Original languageEnglish
Title of host publicationPICMET 2014 - Portland International Center for Management of Engineering and Technology, Proceedings
Subtitle of host publicationInfrastructure and Service Integration
EditorsDundar F. Kocaoglu, Gary Perman, Dilek Cetindamar Kozanoglu, Tugrul U. Daim, Timothy R. Anderson, Kiyoshi Niwa
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages542-554
Number of pages13
ISBN (Electronic)9781890843304
StatePublished - 10 Oct 2014
Event2014 Portland International Center for Management of Engineering and Technology, PICMET 2014 - Kanazawa, Japan
Duration: 27 Jul 201431 Jul 2014

Publication series

NamePICMET 2014 - Portland International Center for Management of Engineering and Technology, Proceedings: Infrastructure and Service Integration

Conference

Conference2014 Portland International Center for Management of Engineering and Technology, PICMET 2014
CountryJapan
CityKanazawa
Period27/07/1431/07/14

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  • Cite this

    Chang, C-C., & Chen, P. Y. (2014). When integration works better than segregation does in multiple-gain situations: The revised coding rules in mental accounting. In D. F. Kocaoglu, G. Perman, D. C. Kozanoglu, T. U. Daim, T. R. Anderson, & K. Niwa (Eds.), PICMET 2014 - Portland International Center for Management of Engineering and Technology, Proceedings: Infrastructure and Service Integration (pp. 542-554). [6921195] (PICMET 2014 - Portland International Center for Management of Engineering and Technology, Proceedings: Infrastructure and Service Integration). Institute of Electrical and Electronics Engineers Inc..