situation, or context, in which you attained the money.

In another example of mental accounting that seems inconsistent to a traditional economist, a person could

carry a credit card debt of $1,000 that has a 15% yearly interest cost, and simultaneously have a $2,000

savings account that pays only 2% per year. That means she pays $150 a year to the credit card company, while

collecting only $40 annually in bank interest, so she loses $110 a year. That doesn’t seem wise.

The “rational” decision would be to pay off the debt, since a $1,000 savings account with $0 in debt is the

equivalent net worth, and she would now net $20 per year. Curiously, it is not uncommon for people to ignore

this advice, since they will treat a loss to their savings account as higher than the benefit of paying off their

credit card. They do not treat the dollars as fungible so it looks irrational to traditional economists.
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