Mental-Accounting Consumer Framework

Credibly representing category-of-goods mental accounting in an intertemporal optimisation framework is notoriously difficult. Although agent-based models provide the flexibility necessary to represent much more types of consumer behaviour than standard optimisation techniques, no comprehensive mental accounting choice framework has been developed within this approach. One of the reasons for this is that mental accounting theory has not described how to represent the process of allocating available funds to expenses on different categories of goods. Neither has it informed about the choice of a product of a particular brand from the assemblage offered on a given market. In this paper, a mental accounting consumer framework addressing these issues is presented. The adopted algorithmic approach allows for modelling the demand for different categories of goods, as well as for representing the demand for infrequently bought goods that require the consumers to take out large amount of multiperiod loans. Both versions of the framework not only allow for representing behaviour in accordance with psychological research, but also lay psychology-based foundations for modelling of independent consumers. They allow for empirical estimation and can be used as bases for econometric and experimental studies of mental accounting consumer behaviour