Question

•As a consumer, how would you avoid the pitfalls posed by the inequalities of one’s cognitive accounting?

Answer 1

To be a good consumer, one has to overcome or at least be aware of the vulnerability to pitfalls in order to make rational investment decisions. The primary characteristic of mental accounting is the violation of the principle that money is fungible. The best approach in which a consumer can avoid the pitfalls laid out by firms is by keeping one golden rule of shopping in mind. These golden rules are whether or not they actually require the product at that point of time or are they buying to stock. Secondly it is very important that entire money, whether received as some gift, earned, or cracked through a jackpot must be treated the same. Although the money received as a gift or earned in a jackpot, an individual is not applying loads of efforts however the only thing which is required to understand is that a penny saved is actually a penny earned. Thus even if source of money is different in all the scenarios, their treatment must be equal.