Nudges derived from Mental Accounting

This thesis first introduces in what way people make decisions based on different heuristics and biases. Rules of thumbs are helpful and require minimal cognitive exhaustion; however their construction is based upon simplified calculations which may lead to less than optimal outcomes of choices. Financial and economic decisions that affect our utility are fairly easy to measure and evaluate. Research shows how people handle their decisions affecting money in contradicting and suboptimal manners. Such empirical findings are a great source for strategies and policies in private and public sectors, already pioneered by Richard Thaler and Cass R. Sunstein (2008) which proposed a series of actions, so-called nudges, in order to promote social architecture to “Improve decisions about health wealth and happiness”. With this thesis I have further pursued this mission. I have created proposals whose objectives are to improve economic decision making based on the exploitation of biases and heuristics that lead to sub-optimal economic outcomes. My study has showed that regardless of relevant knowledge of the mental processes behind our economic decisions, people are quite stable in their preferences. Nevertheless, when the proposal is proposed and implemented by a third party, the preferences significantly shifted towards a more optimal economic judgment. Also, demographics such as gender proved to be a significant factor in banking related proposals. Women who were educated in mental accounting processes tended to favor the proposals more than the equally educated men. In sum, learning how such strategies can work and for who they might be most effective can be of relevance for improving social and economic architecture going forward.