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In today’s business world, companies and governments are always looking for ways to stimulate consumption and boost economic growth. One approach gaining popularity is the use of “psychological accounts” to influence consumer behavior. By framing incentives in a certain way, businesses and governments can tap into people’s emotions and motivations to encourage them to spend more. 

Tax Reductions vs. Bonuses 

One example of this is the use of tax reductions versus bonuses. In a city’s tax department, officials were struggling to encourage citizens and businesses to spend more despite tax reductions. They found that even though people were happy about the tax reductions, they still weren’t spending more money. To address this issue, they tried reframing the incentive as a bonus instead of a tax reduction. By doing so, people’s perception of the money changed from something they were entitled to (i.e. less taxes owed) to something unexpected and exciting (i.e. a bonus). This shift in perception led people to spend more money, as they felt they had extra funds to do so. 

Products as Gifts 

Another example is the use of products as gifts. A company that sells expensive health products found that customers were hesitant to buy due to the high cost. To address this issue, they reframed the product as a gift instead of a purchase. By doing so, customers’ perception of the product changed from something they had to buy for themselves to something they could give as a gift to others. This shift in perception led to an increase in sales, as people were more willing to spend money on gifts than on themselves. 

Giving Money to Parents 

Lastly, a personal example is giving money to parents. A person who gives their parents money every year during Chinese New Year found that their parents were saving the money instead of spending it. To address this issue, they tried giving their parents smaller amounts of money more frequently instead of one lump sum. By doing so, their parents’ perception of the money changed from something they needed to save for a big expense (i.e. for their grandchildren) to something they could spend on smaller things without feeling guilty. This shift in perception led to an increase in spending, as their parents felt less pressure to save the money. 

The Psychology Behind “Psychological Accounts” 

The use of psychological accounts is based on the idea that people have different “mental accounts” for their money depending on its origin and purpose. These mental accounts can be influenced by framing incentives in a certain way, which can lead to changes in behavior. 

For example, when people receive unexpected money (such as a bonus), they tend to view it as separate from their regular income and are more likely to spend it on discretionary items. On the other hand, when people receive money that they view as part of their regular income (such as a tax reduction), they are less likely to spend it on discretionary items. 

Similarly, when people view money as part of their emotional or social relationships (such as giving gifts or helping family members), they are more likely to spend it than if they view it as part of their regular expenses. 

The use of psychological accounts can also be influenced by cultural factors. For example, in some cultures, saving money is seen as a virtue, while in others, spending money is seen as a way to show social status. 

Implications for Businesses and Governments 

The use of psychological accounts has important implications for businesses and governments looking to stimulate consumption and boost economic growth. By understanding people’s mental accounts and framing incentives in a certain way, they can encourage people to spend more money. 

For businesses, this could mean reframing products as gifts or offering bonuses instead of discounts. It could also mean targeting emotional or social relationships in marketing campaigns. 

For governments, this could mean offering tax credits instead of tax reductions or reframing incentives as bonuses or rewards. It could also mean targeting cultural attitudes towards saving and spending in policy decisions. 

Conclusion 

The use of psychological accounts is a powerful tool for businesses and governments looking to influence consumer behavior. By understanding people’s mental accounts and framing incentives in a certain way, they can encourage people to spend more money and boost economic growth. 

However, it is important to note that the use of psychological accounts should be done ethically and responsibly. Businesses and governments should not manipulate people’s emotions or take advantage of vulnerable populations. 

Overall, the use of psychological accounts offers a promising approach for businesses and governments looking to stimulate consumption and boost economic growth in a responsible and sustainable way.

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