Mental accounting is a psychological phenomenon in which people categorize and treat money differently depending on subjective factors such as the source, intended purpose, or emotional attachment to the funds.
Humans have a tendency to create mental budget compartments in which specific acts of consumption and payments are linked. This mechanism can be counter-productive in terms of energy consumption and can harm efforts to reduce carbon emissions. Psychologists have linked mental accounting theories and research to energy and sustainability behavior, proposing concrete strategies to increase the effectiveness of climate-control measures.
Mental accounting is a concept that describes the mental processes we use to organize our resource use. Humans have a tendency to create separate mental budget compartments in which specific acts of consumption and payments are linked. This mechanism can be counter-productive in terms of energy consumption and can have a negative impact on efforts to reduce carbon emissions.
Psychologists from the University of Geneva (UNIGE), in collaboration with the University of Applied Sciences and Arts of Western Switzerland (HES-SO Valais), have published a viewpoint in the highly influential journal Nature Energy. The article connects theories and research on mental accounting to energy and sustainability behavior, proposing concrete strategies to improve the impact of climate-control measures.
Our work helps to understand behaviour, how humans make choices and take decisions. Our goal isn’t to abolish free will, but to provide a behavioural toolbox. Policymakers can use this knowledge to develop strategies based not just on scientific evidence, but also on ethical considerations.
Valentino Piana
Mental accounting, which has been studied by psychologists since the 1980s, describes how the human mind works when performing acts of consumption. For example, someone who has purchased a movie ticket in advance but cannot find it when they arrive at the theater will not typically purchase a second ticket because their film budget has already been depleted! This example exemplifies our proclivity to mentally segment our budgets and associate them with specific acts of consumption.
“These fundamental cognitive mechanisms can assist us in better understanding unsustainable behavior.” If they are considered, they could be used to fine-tune the way policy instruments are designed to combat climate change, improve prevention, and promote sustainable behavior,” says Tobias Brosch, professor of sustainable development psychology at UNIGE’s Faculty of Psychology and Educational Sciences and the Swiss Centre for Affective Sciences.
“For this article, we used the current carbon tax debate to demonstrate the impact of three mental accounting mechanisms on behavior and to propose ways to mitigate this impact.”
Justifications, rebounds and labels
The spillover effect describes how we tend to justify one behavior by justifying another. “Someone who cycles to work every day will use this argument to justify, to himself or others, purchasing a plane ticket to go on vacation to the Seychelles.” According to the psychologist, “one possible intervention strategy to prevent this is to encourage people to create differentiated mental accounts using targeted messages.”
The rebound effect describes how actions can result in a negative energy balance when people fail to adjust their budgets to a changing situation. People who buy an energy-efficient car, for example, may feel compelled to use it more frequently, negating any potential energy savings. To tackle this phenomenon, the psychologists suggest informing people about the real energy costs of their new car so they can update their consumption budget.
Our minds create mental accounts with precise labels. The mental account that is opened when we receive a sum of money in a specific context determines what the money will be spent on. “A monetary gift received for a birthday will be labelled ‘pleasure’, and will most likely be spent on pleasurable experiences,” says Professor Brosch by means of illustration. This can be problematic in the context of sustainable decision-making. For instance, the financial returns on solar panels installed at home appear only indirectly in the electricity bill and are not explicitly labelled as “energy saving.”
Accordingly, people will not necessarily think about reinvesting this money in new sustainable measures. “Clear labels are needed. In Switzerland, part of the carbon levy is returned to citizens via a reduction in health insurance costs. It would be better to label such an income ‘Climate action revenue’,” argues Tobias Brosch.
Take the right measures but don’t forget your values
The analysis carried out by the psychologists proposes concrete measures aimed at the political sphere so that pro-climate initiatives can be improved by factoring in human behaviour. “We need to clearly show the price of energy, make the message salient, and demonstrate the impact of consumption on CO2-emissions through concrete feedback,” summarises Ulf Hahnel, senior researcher at UNIGE and first author of the study.
The approaches developed in the perspective help conceptualise spending and diversify mental accounts so that individuals can better adapt their behaviours. But Hahnel warns: “Be careful to consider your values and not to fall into purely marketing-based initiatives. You cannot put sustainability labels on just any tax credit.”
“Bounded rationality, including mental accounting, can help introducing innovative policies for climate change mitigation in addition to price-oriented ones” adds Valentino Piana, senior economist at HES-SO, who contributed to the study. Professor Brosch concludes in the same tone: “Our work helps to understand behaviour, how humans make choices and take decisions. Our goal isn’t to abolish free will, but to provide a behavioural toolbox. Policymakers can use this knowledge to develop strategies based not just on scientific evidence, but also on ethical considerations.”
