Lately, every purchase feels a bit heavier than it should. You’re not buying much more than usual, but your bank balance seems to disappear faster. Maybe you’ve cut back on takeout, or started hesitating before grabbing your favorite snack, and yet things still don’t add up. That’s the strange part about inflation: inflation doesn’t just hit our wallets; it messes with our minds. Even when we know things cost more, we don’t always feel it in the right way.
Sometimes it’s because we still expect things to cost what they did a year or two ago, and any change feels unfair, no matter the reason. Other times, we might treat money differently depending on where it’s “meant” to go, splurging in one area while tightening up in another, even if it makes no real difference overall. And often, what really gets us isn’t the price itself, but how it’s presented:
a bigger number in bold, or a smaller package for the same cost. These little mental traps shape the way we spend, save, and stress, especially when everything around us is becoming more expensive.
We like to think we’re making rational choices with money, especially when prices start to rise. But in reality, our decisions are often shaped by mental shortcuts that don’t always serve us well. One such shortcut is our tendency to compare current prices with what we’ve seen before, even if the context has changed. This is known as anchoring (Tversky and Kahneman,1974), which describes how people rely heavily on the first piece of information they encounter when making decisions. When we recall the “usual” price of an item, that number becomes our reference point, and any deviation feels exaggerated. For example, if your regular cappuccino jumps from €1.60 to €2.00, it might not seem like much in absolute terms, but emotionally it feels like a violation of what that coffee “should” cost. Anchoring can make even reasonable price adjustments feel unfair, leading us to overreact or misjudge value.
Another way inflation distorts our thinking is through mental accounting (Richard Thaler, 1985), which refers to the way people mentally divide their money into categories. We tend to treat money differently depending on where it’s supposed to go. For instance, someone might cut back on groceries because prices feel high, yet still spend the same amount on weekend dinners or occasional treats. The issue isn’t a lack of self-control, but how we tend to separate our spending in our heads. These mental categories, while useful for budgeting, can become rigid, especially during inflation, when flexibility is key. Instead of adapting our overall spending, we might stick with familiar routines to maintain stability, even if they don’t add up logically.
Lastly, our reaction to rising prices often depends not on the amount itself, but on how that amount is presented. This is known as the framing effect (Tversky, Kahneman,1981), which shows that people react differently depending on how choices are worded or displayed, even when the actual outcomes are the same. A company might keep the price of a product the same, but reduce the quantity, a strategy known as shrinkflation, and many customers won’t notice. But if the price is raised openly, even by a small amount, the backlash can be immediate. The way information is framed, whether a discount is shown as “10% off” or “save €5”, influences how we perceive value and fairness. During times of inflation, companies use framing to soften the impact, but it also reveals how easily our perceptions can be shaped by context, not content.
Understanding how our minds respond to rising prices doesn’t magically make things cheaper — but it can help us make clearer, more balanced choices. When we recognize the invisible forces shaping our spending, like clinging to old price points, assigning different values to the same money, or reacting to how prices are presented, we give ourselves a little more space to pause and rethink. Inflation affects everyone, but the way we deal with it isn’t just about the economy — it’s also about psychology. And sometimes, just being aware of these mental traps is the first step toward navigating them more wisely.
Cherry, K., (2023) How Ancoring Bias Affects Decision-Making [online]. Available at: https://www.verywellmind.com/what-is-the-anchoring-bias-2795029 (Accessed: 18 April 2025)
Segal, T. (2024) Mental Accounting: Definition, Avoiding Bias, and Example [online]. Available at: https://www.investopedia.com/terms/m/mentalaccounting.asp (Accessed: 18 April 2025)
Pilat,D. ,Krastev, S. (n.d.) Why do we think less about some purchases than others [online]. Available at: https://thedecisionlab.com/biases/mental-accounting (Accessed: 18 April 2025)
Pilat,D. ,Krastev, S. (n.d) Why do our decisions depend on how options are presented to us [online]. Available at: https://thedecisionlab.com/biases/framing-effect (Accessed: 18April 2025)
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