To buy, or not to buy...

Explain and give an example of a mental transaction cost.

A mental transaction cost can be defined by a decision that must be made by a consumer when making a purchase. Is that purchase necessary? Is the cost worth what is being received in return? These are the questioned involved with the decision to make a purchase. People would rather not think and make decisions which means people would prefer to have little or no transaction cost. That is one reason people like free things. If there is no cost to the product then the decision is made infinitely easier by the fact that the mental transaction cost is basically eliminated.
According to Chris Anderson, in his chapter on "free," Selling something even as cheap as a penny can deter people from making a purchase. That simple one cent cost forces a decision and a higher mental transaction cost. Obviously that transaction cost would be lower than the purchase of a new car. That mental transaction cost requires a much higher level of thought.
One example of a mental transaction cost takes place when a consumer is shopping for a new shirt. The consumer must decide it the cost is worth what is being gained, the new shirt. If the shirt is a name brand the monetary cost is higher but the benefit may be higher as well. The shirt may be "cool" or look really good on the purchaser, these are things that could go through the head of the person making the purchase. The mental transaction cost is like what is being given up if the purchase is made. The consumer would obviously lose some amount of money and possibly popularity but would gain a shirt and possible popularity. In this case the consumer must determine if the pros out weigh the cons.
This example shows the mental transaction cost of purchasing a shirt. There are these costs when making any purchase. It is important to keep these points in mind when making a purchase. Most people make these choices in their head without even realizing, but they are still present.