Ignoring the Fact that Money Is Fungible Across Categories
Zimran Ahmed on preferences in economics: “All else equal, a gain of $10 should be worth as much to you as not losing $10. In practice, losses loom larger than gains, and people prefer to forgo $10 new dollars over paying $10 old dollars out of pocket. People also use mental accounts, so they will create categories for expenditures and ignore the fact that money is fungible across categories. This leads to amusing anecdotes about people risking blizzards to see a play when they bought the ticket, but deciding the drive is not worth it if they were given the tickets as a gift. In standard Chicago school neo-classical economics, none of this should happen.”
