Theoretical and Applied Economics
No. 1 / 2019 (618), Spring
Why do high ability people also suffer from money illusion? Experimental evidence of behavioral contradiction
University Paris 2 Panthéon-Assas, Paris, France
Abstract. Money illusion refers to the tendency of the individuals' decisions to be influenced by the nominal amount of money. It is a persistent phenomenon even for high ability people such as professional investors, and causes considerable aggregate nominal inertia. However, it has not been well discussed why they suffer from money illusion even though they are able to distinguish the nominal and real value.
In this paper, we focus on numerical ability and investigate its relation to the tendency to suffer from money illusion. We show subjects two alternative funds (one fund has a higher nominal value and the other fund has a higher real value) and asked which one is preferable. Subsequently, they evaluated the attractiveness of each fund with a scale from 0 to 10.
Results show that high numeracy generally helps to distinguish the nominal and real value. However, when high numeracy individuals consider well-being, their decision is strongly affected by nominal value. Additionally, even though the high numeracy subjects were able to distinguish the nominal and real value, they evaluate the attractiveness of the fund with the high real value significantly lower than the fund with the high nominal value. Those behavioral tendencies prominently appeared when the nominal values are shown by the balance of assets.
The contradictory behaviors of high numeracy individuals may be largely involved in the integral emotions which accompanying with the nominal value.
Contents
Why do high ability people also suffer from money illusion? Experimental evidence of behavioral contradiction
Macroeconomic stability of new member states of the European Union: Fifth enlargement
The global context of economic crises and cohesion funds in the EU
Is real depreciation or more government deficit expansionary? The case of Macedonia
Models and theories in a frictions and wage rigidities labor market
Human capital and the FDI-Income inequality nexus in African countries: Panel smooth transition regression approach
Are institutions a crucial determinant of cross country economic efficiency? A two-stage double bootstrap data envelopment analysis
The relationship between unemployment and some macroeconomic variables: Empirical evidence from India
Inequity in health care sector in India: A case study of district level in four Indian states
Performance in public administration: Doing outside the box under the rule of procedures
Trade effects based on general equilibrium
Empirically testing Keynesian defense burden hypothesis, nonlinear hypothesis, and spillover hypothesis: Evidence from Asian countries