Question

Your grandma likes to play Bingo every Friday night. One night she wins $50 and spends it on coloring her hair pink even though she has been saving for a new rocking chair. She said because she won the $50 instead of receiving it in her social security check it was "fun money." This is an example of _______________________.

Answer 1

Mental accounting.

Step-by-step explanation:

Mental accounting is the process by which people categorise, code, and evaluate economic outcomes of actions. It involves categorisation of expenses. This classification of funds can lead to irrational behaviour in spending and investment.

Money is valued based on personal and subjective criteria.

In this instance the grandma has classified the $50 as fun money because she won it playing Bingo. Even though she was saving for a rocking share she used the fun money to color her hair.