Psychic budgets (Tversky and Kahneman, 1981)

Psychic budgets are a concept originated by Amos Tversky and Daniel Kahneman’s in their 1981 paper, “The Framing of Decisions and the Psychology of Choice”. The idea is that people tend to think of resources as either ‘available’ or ‘unavailable’, depending on the context and how their minds have organized the costs of the decision. In other words, costs are often seen in relative terms, not absolute ones. For example, we might think that a vacation costing $2,000 is not a significant expense relative to our entire budget, but when compared to only our monthly income, it might seem like a much greater expense. This is the idea of psychic budgets: that our minds organize resources in ways that make them more or less available, depending on our context.