A client, Mr. Chen, has two distinct investment accounts: 'Retirement Savings' and 'Vacation Fund'. Both accounts hold similar types of investments, but he meticulously tracks and optimizes his 'Retirement Savings' for long-term growth while taking significantly more risks with his 'Vacation Fund,' justifying it as 'fun money.' Which behavioural bias best describes this behaviour?

Question: A client, Mr. Chen, has two distinct investment accounts: 'Retirement Savings' and 'Vacation Fund'. Both accounts hold similar types of investments, but he meticulously tracks and optimizes his 'Retirement Savings' for long-term growth while taking significantly more risks with his 'Vacation Fund,' justifying it as 'fun money.' Which behavioural bias best describes this behaviour?

Answer options: ✅ Mental Accounting

• Framing Effect
• Confirmation Bias
• Overconfidence

Correct answer: Mental Accounting

Explanation: Mr. Chen is engaging in mental accounting by assigning different subjective values and risk tolerances to money based on its intended purpose ('retirement' vs. 'vacation'), leading to inconsistent investment strategies across similar assets.