Observable Consequences of Mental Accounting

We derive necessary and sufficient nonparametric conditions for several models of mental accounting.

The paper characterises pure mental accounting, separable accounts, and labelled income, and compares these boundedly rational models with two rational multi-stage budgeting benchmarks.

The resulting Afriat-style conditions make the observable implications of mental accounting explicit and refutable.

In this sense, mental accounting is treated not as a loose description of behaviour, but as a formally refutable hypothesis about the organisation of consumption.