Expected Value and Consumer Choices

Running Head EXPECTED VALUE AND CONSUMER CHOICES 1

ExpectedValue and Consumer Choices

InstitutionAffiliation

Consumerdecision making is the process of identifying wants, gathering facts,weighing options, and making buying decisions. The mental accountsdetermining a choice of investment is context dependent, and paymentinfluences the allocation of resources into these accounts (Besharat,2012). Mental accounting is described within the context ofmarketing, how companies can capitalize on the aspect, and howconsumers can avoid being taken advantage of from their decisions.

Mentalaccounting is the theory that people view value in relative asopposed to absolute terms they obtain pleasure from a product’stransaction utility. The main idea is that people treat money bywhere it was obtained or its intended use, rather than viewing it asstandard accounting. In mental accounting, people treat money as lessfungible they attach labels to money ignoring the fact that allmoney is equal. They treat money as current or future wealth, therebymaking irrational decisions by overspending and engaging in indulgentconsumption. It happens when they have invested a lot of money, time,and effort towards the attainment of a consumption goal (Besharat,2012).

Peopletry to get their investment worth by spending a lot while in the realsense they are using their money irrationally. Also, when employscome into unexpected money while working at something they haveinvested their time and effort in, they usually lose self-control inspending the money. These mental accounts are closed once theconsumption benefits are fully met (Besharat, 2012).

Acompany can capitalize on consumer’s mental accounting byencouraging the use of credit cards while making purchases. This isbecause it has been found out that people have better control oftheir expenditure when they pay with cash as opposed to when they usecredit cards, they spend excessively and extravagantly. Consumersoften seek reasons to justify their choices especially when theirchoices conflict with their personal values like spending forpleasure instead of practical purposes. Companies could also sellthemselves as exclusive organizations, or exclusive at given dates.For example, in the hotel industry where a company is reserved forimportant people on a given day and to be allowed entry you have topay $10. A person who pays the entrance fee will be willing to spendmore in the hotel to justify the initial payment (Besharat, 2012).

Inthe marketing industry, loss of self-control is revealed troughexcessive spending. Marketers can use this to maximize their sales byadvertising their product on the basis that the experience of aproduct goes beyond that of its price. This can be applied to anoverpriced chocolate that when consumed exposes the mind to newsensations the consumer will buy the product due to the experienceexpected and ignore the price. Products can be promoted asinvestments rather than consumptions, and on these points, consumerswill be willing to pay more because it will justify the price. Here,the reason-based decision will counteract the pain of purchase.Products can be classified as mood enhancers. Because people tend toeat unhealthy food during feelings of unhappiness to overcome theirnegative state of mind, consumers will spend any amount to indulge inthe consumption of the product for them to be happy or regain abalanced state of mind (Besharat, 2012).

Consumersshould always be aware that money is fungible regardless of itsintended use or origins. We prevent overspending and misuse of moneyby not giving it labels such as house money, investment money, foundmoney. If all money is treated equally we would be able to managespending and finances more rationally and efficiently (Besharat,2012).

References

Besharat,&nbspA.(2012). Essays on mental accounting and consumers’ decisionmaking (Doctoral dissertation). Retrieved fromhttp://scholarcommons.usf.edu/etd