Loss is a loss, why categorize it? Mental accounting across cultures

Abstract

Abstract Consumers regularly track their expenses and assign them to categories like food, entertainment, and clothing, which is popularly known as mental accounting. In this paper, we show that consumption biases that result from mental accounting—underconsumption or overconsumption—are not prevalent in Easterners due to their holistic thinking style, whereas Westerners exhibit such biases due to their analytic thinking style. In Study 1, we collected data with Easterners (students from the eastern part of India) and show that they do not exhibit mental accounting biases as is seen in Westerners. In Study 2, we show that such differences in mental accounting across cultures result from their thinking styles by manipulating thinking styles within a Western population (American students from the Midwest). We also show that the differences in styles of thinking across cultures motivate two different types of accounting processes—a piecemeal accounting process in the Westerners and a comprehensive accounting process in the Easterners—which in turn influence the differences in mental accounting biases across cultures. This finding adds to the growing literature in cross‐cultural differences in consumer decision making and explores how and why a well‐documented robust effect, mental accounting, varies with the cultural background of the consumers.