UNEXPECTED LOSSES, IMPORTANCE OF NON-FUNGIBILITY OF MONEY AND PSYCHOLOGICAL REASON FOR NON-FUNGIBILITY OF EXPENDITURE AND INCOMES

Shirish Panchal and Avdhesh S. Jha

No 2014-09-10, Working papers from Voice of Research

Abstract: In our day to day life we incur costs and losses. The paper treats costs and losses as outflows of money. Some outflows of money are expected and accounted for mentally in advance (EMI of a car loan or a home loan), whereas certain outflows are not expected and have to be met unawares (a medical bill or a theft). Thepresent paper explores how both these types of outflows affect us hedonically. Pain and pleasure are the two basic hedonic states discussed. These are psychological states, not physical. The study discusses contingency accounts and mental accounting of contingency. Non-fungibility of money which is one of the central concepts of Mental Accounting is discussed as a useful tool for contingency situations. The work investigates possible psychological reason for non-fungibility of money. Key words: Mental Accounting, Prospect Theory, Non-fungibility of money, Expected and Unexpected Losses, Economic Outflows & Inflows, Contingency, Gambling Instinct, Pain

Date: 2014-09
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