Tracking Costs of Time and Money: How Accounting Periods Affect Mental Accounting

After people incur costs to get future benefits, they usually track these costs in their mental accounts and are keen to receive the benefits when they become available. We introduce the notion that costs and benefits can occur either in the same accounting period (day, season, etc.) or in different periods. Our key ar-gument is that monetary costs are tracked across accounting periods but that temporal costs are written off at the end of the period in which they are incurred. Thus, accounting periods lead to a time-money asymmetry in the tracking of costs and, consequently, in the likelihood of seeking benefits. In a laboratory study, an online-panel study, and a field study with movie-theater patrons, we demonstrate how this relationship among accounting periods, cost tracking, and benefit seeking is different for time than for money. Our findings offer insights into the sunk-cost effect, time-money differences, and mental accounting. People often incur costs first and receive benefits later.A football fan spends money on tickets weeks before attending the game, whereas an assistant professor spends time writing articles years before being awarded tenure. Peo-ple may track such costs and benefits via “mental accounts.” An advance purchase of a football-game ticket may initiate a mental account that is settled in the black if the consumer receives the benefit by attending the game, or settled in the red if the consumer misses the game (Prelec and Loewen-stein 1998; Thaler 1980, 1985, 1999). Across different accounts, the mental accounting of money and time seems to be similar. For instance, pension money is treated differently from checking-account money (Shefrin and Thaler 1981), and work time is treated differ-ently from nonwork time (Rajagopal and Rha 2009). Within mental accounts, however, the results for money and time differ. Within a game account, for instance, people keep Robin L. Soster