ABSTRACT
The evidence of mental accounting and inattention is relevant for firms seeking to exploit consumer decisions for profit, and policy makers designing interventions to promote welfare. This chapter begins with the implications of mental accounting for selling strategies. In particular, the concepts of acquisition utility and transaction utility can explain phenomena that include perpetual discounts and sold-out concerts. Payment decoupling and gift-giving marketing strategies are also consistent with firms profitably responding to the mental accounting of customers. Next, the chapter considers the relevance of mental accounting for the design of policies to improve savings rates in the developing world. The second half of the chapter turns to the implications of inattention: first, for the incentives of firms to shroud add-on prices from consumers, and second, for policies that nudge attention to promote better-informed decisions. The impacts of nudging interventions for health, education, and income decisions are discussed in turn. The chapter concludes with empirical evidence that reveals the power of a government’s persuasive messaging to shape cultural attitudes and individual behaviors.
