IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0055025.html
   My bibliography  Save this article

A Nickel Ain't Worth a Dime Anymore: The Illusion of Money and the Rapid Encoding of Its True Value

Author

Listed:
  • Rongjun Yu
  • Yi Huang

Abstract

People often evaluate money based on its face value and overlook its real purchasing power, known as the money illusion. For example, the same 100 Chinese Yuan can buy many more goods in Tibet than in Beijing, but such difference in buying power is usually underestimated. Using event related potential combined with a gambling task, we sought to investigate the encoding of both the real value and the face value of money in the human brain. We found that the self-reported pleasantness of outcomes was modulated by both values. The feedback related negativity (FRN), which peaks around 250ms after feedback and is believed to be generated in the anterior cingulate cortex (ACC), was only modulated by the true value but not the face value of money. We conclude that the real value of money is rapidly encoded in the human brain even when participants exhibit the money illusion at the behavioral level.

Suggested Citation

  • Rongjun Yu & Yi Huang, 2013. "A Nickel Ain't Worth a Dime Anymore: The Illusion of Money and the Rapid Encoding of Its True Value," PLOS ONE, Public Library of Science, vol. 8(1), pages 1-8, January.
    • Handle: RePEc:plo:pone00:0055025
    DOI: 10.1371/journal.pone.0055025
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0055025
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0055025&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0055025?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rongjun Yu & Wu Zhou & Xiaolin Zhou, 2011. "Rapid Processing of Both Reward Probability and Reward Uncertainty in the Human Anterior Cingulate Cortex," PLOS ONE, Public Library of Science, vol. 6(12), pages 1-7, December.
    2. Janet L. Yellen & George A. Akerlof, 2006. "Stabilization Policy: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 1-22, January.
    3. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    4. Alison Harris & Ralph Adolphs & Colin Camerer & Antonio Rangel, 2011. "Dynamic Construction of Stimulus Values in the Ventromedial Prefrontal Cortex," PLOS ONE, Public Library of Science, vol. 6(6), pages 1-13, June.
    5. Mayer, Michelle L. & Rozier, R. Gary, 2000. "Money illusion among health care providers: should we adjust for inflation in analyses of provider behavior?," Social Science & Medicine, Elsevier, vol. 51(3), pages 395-405, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Jianbiao & Wang, Wei & Cao, Qian & Niu, Xiaofei, 2023. "Transcranial stimulation over the medial prefrontal cortex increases money illusion," Journal of Economic Psychology, Elsevier, vol. 99(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pierre Fortin, 2016. "A Stable 4% Inflation Could Get Canadians One Half Million More Jobs," Cahiers de recherche 1604, CIRPEE.
    2. repec:spo:wpecon:info:hdl:2441/6120 is not listed on IDEAS
    3. Adam Elbourne & Debby Lanser & Bert Smid & Martin Vromans, 2008. "Macroeconomic resilience in a DSGE model," CPB Discussion Paper 96.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. repec:spo:wpmain:info:hdl:2441/2pguj421ms98or9o9plc5q0m62 is not listed on IDEAS
    5. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
    6. Park, Seonyoung & Shin, Donggyun, 2017. "The extent and nature of downward nominal wage flexibility: An analysis of longitudinal worker/establishment data from Korea," Labour Economics, Elsevier, vol. 48(C), pages 67-86.
    7. Janet L. Yellen, 2015. "Inflation Dynamics and Monetary Policy : A speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, Amherst, Massachusetts, September 24, 2015," Speech 863, Board of Governors of the Federal Reserve System (U.S.).
    8. Alok Kumar, 2008. "Inflation And The Dispersion Of Real Wages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 377-399, May.
    9. Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-34.
    10. Ichiishi, Tatsuro, 1985. "Management versus ownership, II," European Economic Review, Elsevier, vol. 27(2), pages 115-138, March.
    11. Reizer, Balázs, 2022. "Employment and Wage Consequences of Flexible Wage Components," Labour Economics, Elsevier, vol. 78(C).
    12. Pierpaolo Benigno & Luca Antonio Ricci, 2011. "The Inflation-Output Trade-Off with Downward Wage Rigidities," American Economic Review, American Economic Association, vol. 101(4), pages 1436-1466, June.
    13. Kim, Jinill & Ruge-Murcia, Francisco J., 2009. "How much inflation is necessary to grease the wheels?," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 365-377, April.
    14. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., 2009. "Are wages rigid in Colombia?: Empirical evidence based on a sample of wages at the firm level," Borradores de Economia 571i, Banco de la Republica de Colombia.
    15. RUGE-MURCIA, Francisco J., 2010. "Estimating Nonlinear DSGE Models by the Simulated Method of Moments," Cahiers de recherche 2010-10, Universite de Montreal, Departement de sciences economiques.
    16. Carlos Massad, 1998. "Monetary Policy in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 1(1), pages 007-027, August.
    17. Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "On quality bias and inflation targets," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 393-400.
    18. Kenji Nishizaki & Toshitaka Sekine & Yoichi Ueno, 2014. "Chronic Deflation in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 20-39, January.
    19. Bruce Fallick & Michael Lettau & William L. Wascher, 2016. "Downward Nominal Wage Rigidity in the United States during and after the Great Recession," Working Papers (Old Series) 1602, Federal Reserve Bank of Cleveland.
    20. Stéphane Dupraz & Emi Nakamura & Jón Steinsson, 2019. "A Plucking Model of Business Cycles," NBER Working Papers 26351, National Bureau of Economic Research, Inc.
    21. Julie Hotchkiss, 1999. "The effect of transitional employment on search duration: A selectivity approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(1), pages 38-52, March.
    22. Vîntu, Denis, 2022. "The Relationship between Inflation, Interest Rate, Unemployment and Economic Growth," MPRA Paper 112931, University Library of Munich, Germany, revised Feb 2022.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0055025. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.