Research has shown that households can use rules-of-thumb in their economic decisions. A well-known example of this is so-called mental accounting. This means that households divide their savings and expenditure items into different accounts such as “entertainment and travel”, “food” and “retirement savings”. As a result, savings are earmarked for different consumption purposes.^[11] See for example Zhang and Sussman (2017) for an overview. For a recent study, see for example Gelman and Roussanov (2023). Mental accounting is a clear departure from standard macroeconomic theory, which usually assumes that it is the aggregate financial resources of households that matter for the ability to consume, or that money is fungible.

The research literature has often found unexpectedly large effects of temporary income changes on consumption. A common explanation for this is the existence of liquidity constraints, for example because the bank cannot grant additional loans. But behavioural economics highlights that such constraints can be self-imposed for psychological reasons.^[12] See for example Gelman (2022) and Vihriälä (2023). For example, households would rather use their wages to consume than take out additional loans. Another rule-of-thumb could be that households do not want to sell the savings in shares they have set aside for retirement to cope with temporarily lower incomes. Another example could be that households use dividends for consumption but refrain from selling the shares.

One reason why households use rules-of-thumb and mental accounting might be to cope with a lack of self-control. This is because studies have shown that individuals often have difficulty sticking to their planned decisions, reflecting so-called present bias or time-inconsistent preferences.^[13] Note that this is a different type of time inconsistency than that commonly discussed in monetary policy, where rational agents change their decisions due to changing conditions. One way of modelling this is so-called hyperbolic discounting, which means that individuals would much rather have the same amount of money today than in a week but do not experience the same difference when comparing getting the amount in a year or in a year and a week.^[14] The formal name is quasi-hyperbolic discounting or the beta delta model. Although the same ideas were favoured by researchers several decades earlier, this concept is closely associated with the American economist David Laibson, who addressed the phenomenon in an article in 1997 (see Laibson, 1997). This may explain, among other things, the occurrence of procrastination, the tendency to postpone planned activities. For example, you decide to start exercising in a week, but when the week is over, it feels optimal to start exercising in another week and so on, so that the exercise never gets started. For example, a well-known study showed that many people buy expensive monthly gym passes and then only make a few visits. In retrospect, it turned out to be much cheaper to pay for each visit separately.^[15] See DellaVigna and Malmendier (2006). But buying a monthly pass can be a way of trying to deal with a lack of self-control by committing to going to the gym, even if it may not work so well.

In the behavioural economics literature, individuals with a lack of self-control are sometimes divided into the categories “naïve” and “sophisticated”. Naïve individuals lack self-control but are unaware of it, while sophisticated individuals are aware of their lack of self-control and therefore demand so-called commitment devices (e.g. a monthly gym pass) to cope with it.

One of the most important findings in behavioural economics research concerns the effects of default options. Studies have shown that households often choose the pre-selected option instead of making an active choice. This means that businesses and public authorities can influence household finances just by framing the options they give them in a different way. A common such application relates to retirement savings, where households save more if they are automatically enrolled in a savings scheme than if they have to make an active choice to save.^[16] See, for example, Choi et al. (2004) Cronqvist and Thaler (2004) and Thaler and Benartzi (2004). These insights have been of huge practical significance in what is known as nudging. In simple terms, it involves changing the choice architecture to make it easier for people to make decisions in line with long-term goals.^[17] For a Swedish discussion, see Ramsberg (2016).