Mental accounting

Have your heard about "Mental Accounting", No? You know that you already use the concept today without knowing that you are using it.

Mental Accounting basically explains the human mind behavior towards money.

"A human mind perceives the value of the same amount of money differently based on the context, however in fact the value of money does not really change"

For instance, while buying a new car that costs around 5 to 6 lakhs, the perceived value of a 50,000 disount is much higher than the perceived value of the same 50,000 discount on a new flat which is costing around say 50 lakhs. The fact is that the discount remains same, however we value it keeping in mind the context of purchase. 

The key reason behind this is because, human mind makes bucket of money for everything. And larger the expense the bigger the bucket, and the size of discount is perceived how much it fills that bucket you have in mind. Only when you compare it with other contexts, you can actually realize the actual value of money. 

Another concept it talks about is:

"Profits are perceived heigher if they come in installments, and losses seem less when combined" 

Let's take an example, let's say you are in a casino and you are playing games. In Scenario one, lets say u earn 10 games giving you a profit of 10,000 each. In scenario two, u win one game of 1,00,000 just once. Now, most humans would be more happy in scenario one when they are back home. And reverse is the case when losses happens. You would be more sad losing 10,000 ten times than losing 1,00,000 just once. 

Hope, now you know how your mind behaves and you can now use it towards your advantage.