Which of the Following Defines or Describes Mental Accounting

question 103

Multiple Choice

Which of the following defines or describes mental accounting?

• A) The act of owning a good increases its value, so the owner must be paid more to give up the good than she would have been willing to pay for it in the first place.
• B) It is a way to frame a bias in which people treat their current and future assets as separable, nontransferable accounts; for example, having mental savings accounts for entertainment, retirement, and other expenditures.
• C) It is the mistake of allowing costs that cannot be recovered to affect decisions.
• D) It is the act of placing too much emphasis on the immediate present than even the near future when making decisions.

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Definitions:

Bond Investments

Financial investments in debt securities issued by corporations or governments, which pay interest and are meant to be repaid at maturity.

Amortized

The gradual reduction of a debt over time by making regular payments that cover both principal and interest.

Held-To-Maturity

Held-to-maturity refers to investment securities that a company has the intent and ability to hold until a specified maturity date.

GAAP

A collection of norms and guidelines utilized in the United States for the purposes of financial reporting and accounting, known as the Generally Accepted Accounting Principles.