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Are Chinese Individuals prone to Money Illusion?

Author

Listed:
  • Heleen Mees

    (New York University, Wagner Graduate School of Public Service, United States)

  • Philip Hans Franses

    (Erasmus University Rotterdam, the Netherlands)

Abstract

We replicate the landmark study of Shafir, Diamond and Tversky (1997) to examine whether individuals in China are prone to money illusion. We find that money illusion is prevalent in China as well. Respondents in the Chinese sample are often somewhat more likely to base decisions on the real monetary value of economic transactions compared to respondents in the U.S. sample. If asked explicitly to evaluate a transaction in terms of happiness or satisfaction, instead of economic terms, money illusion among respondents in the Chinese sample is comparable to money illusion among respondents in the U.S. sample.

Suggested Citation

  • Heleen Mees & Philip Hans Franses, 2011. "Are Chinese Individuals prone to Money Illusion?," Tinbergen Institute Discussion Papers 11-149/4, Tinbergen Institute, revised 25 Mar 2014.
    • Handle: RePEc:tin:wpaper:20110149
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    File URL: https://papers.tinbergen.nl/11149.pdf
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    References listed on IDEAS

    as
    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    2. Mauro Boianovsky, 1993. "Böhm-Bawerk, Irving Fisher, and the Term “Veil of Money”: A Note," History of Political Economy, Duke University Press, vol. 25(4), pages 725-738, Winter.
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    Cited by:

    1. Darriet, Elisa & Guille, Marianne & Vergnaud, Jean-Christophe & Shimizu, Mariko, 2020. "Money illusion, financial literacy and numeracy: Experimental evidence," Journal of Economic Psychology, Elsevier, vol. 76(C).
    2. Thomas A. Stephens & Jean-Robert Tyran, 2016. "Money Illusion and Household Finance," Discussion Papers 16-14, University of Copenhagen. Department of Economics.
    3. Murota, Ryu-ichiro, 2019. "Negative interest rate policy in a permanent liquidity trap," MPRA Paper 93498, University Library of Munich, Germany.

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    More about this item

    Keywords

    Money illusion; Experimental economics; Financial behavior; Psychology of money;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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