Provide an explanation from behavioral economics for why people tend to buy overpriced warranties for large consumer purchases such as a large-screen TVs.

People arbitrarily put certain options into totally separate "mental accounts" that they consider without thinking about any options outside of those accounts. As an example of mental accounting, consider the extended warranties offered by big electronic stores whenever customers purchase expensive products like big screen TVs. These warranties are overpriced given that the products they insure hardly ever break down. Personal financial experts tell people not to buy them. Yet many people do buy them because they engage in mental accounting by labeling their purchase of the TV as an isolated, individual transaction. Viewing the purchase in isolation exaggerates the size of the potential loss that would come from a broken TV. By contrast, people who can see the big picture are able to compare the potential loss with the much larger value of their entire future income stream. By following that thought process, they realize that the potential loss is relatively minor, and not a good enough reason to purchase an expensive warranty for a product that is very unlikely to break down.