Cognitive Style and Mental Accounting: Examining the Influence of Analytic and Holistic Thinking

Abstract

Richard H. Thaler, recognised as the pioneer in the study of mental accounting, demonstrated through his seminal work ‘Mental Accounting Matters (Thaler R. H., 1999) that individuals employing this mental framework experience predictable decision-making errors. People enact mental accounting practices when they assess and manage their financial resources based on personal judgement rather than established financial principles.

Bakhchina (Anastasiia V Bakhchina, 2021) investigated the differences in physical and mental capabilities among individuals who engage in two distinct ways of thinking – analytic and holistic. Their findings revealed that these two divergent thought patterns, encompassing analytic and holistic thinking, resulted in notable variations in heart rate complexity and cognitive processing patterns.

Research indicates that individuals process incoming information through the lens of their unique cognitive styles, which in turn shape their decision-making abilities. The study found that analytic thinkers who analyze large systems by breaking them down into smaller elements display different behavior patterns than holistic thinkers who use contextual and relational information to understand their environment (Hossain, 2018). Notably, Hossain suggests that individuals with an analytic cognitive style are more susceptible to mental accounting biases than those with a holistic orientation.

Against this backdrop, the present study seeks to investigate the relationship between cognitive style—analytic versus holistic—and susceptibility to mental accounting biases among Indians.