Money illusion is usually defined as the inability of individuals to correctly account for inflation or deflation when making decisions. Empirical evidence shows that money illusion matters in financial decisions, particularly those made by households. In this article, we analyze money illusion at the individual level within the context of financial choices and study its relationship with numeracy and financial literacy. To do so, we propose an original measure of money illusion via an experimental task. This task consists of a series of choices between a pair of simple bonds whose returns are affected only by inflation (or deflation). We provide a fine-grained measure of money illusion that is correlated with typical measures (questionnaires) of it. Moreover, we show that money illusion depends on the choice context (e.g., inflation or deflation) and participants’ abilities. Individuals with financial knowledge are less sensitive to money illusion than others, while there is no evidence of an impact of numeracy.
Money illusion, financial literacy and numeracy: experimental evidence
Résumé
en
Money illusion is usually defined as the inability of individuals to correctly account for inflation or deflation when making decisions. Empirical evidence shows that money illusion matters in financial decisions, particularly those made by households. In this article, we analyze money illusion at the individual level within the context of financial choices and study its relationship with numeracy and financial literacy. To do so, we propose an original measure of money illusion via an experimental task. This task consists of a series of choices between a pair of simple bonds whose returns are affected only by inflation (or deflation). We provide a fine-grained measure of money illusion that is correlated with typical measures (questionnaires) of it. Moreover, we show that money illusion depends on the choice context (e.g., inflation or deflation) and participants’ abilities. Individuals with financial knowledge are less sensitive to money illusion than others, while there is no evidence of an impact of numeracy.
1
LIRSA -
Laboratoire interdisciplinaire de recherche en sciences de l'action
( 186209 )
- CNAM 292 rue Saint Martin 75 141 PARIS Cédex 03
- France
Conservatoire National des Arts et Métiers [CNAM] EA4603 ( 300351 )
;
HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université ( 302628 )
2
LEMMA -
Laboratoire d'économie mathématique et de microéconomie appliquée
( 219652 )
- Université Paris 2, LEMMA 4 rue Blaise Desgoffe 75006 Paris
- France
Université Panthéon-Assas EA4442 ( 44614 )
3
CES -
Centre d'économie de la Sorbonne
( 15080 )
- Maison des Sciences Économiques - 106-112 Boulevard de l'Hôpital - 75647 Paris Cedex 13
- France
Université Paris 1 Panthéon-Sorbonne UMR8174 ( 7550 )
;
Centre National de la Recherche Scientifique UMR8174 ( 441569 )
4
CNRS -
Centre National de la Recherche Scientifique
( 441569 )
- France
Licence
Paternité - Pas d'utilisation commerciale
Langue du document
Anglais
Nom de la revue
Journal of Economic Psychology
(ISSN : 0167-4870)
Publié par Elsevier
Revue non référencée dans Sherpa-Romeo
Vulgarisation
Non
Comité de lecture
Oui
Audience
Internationale
Date de publication
2020-01
Date de publication électronique
2019-10-01
Volume
76
Page/Identifiant
102211
Classification
PsycINFO Classification code: 2260; 2340; 2343
Commentaire
We would like to thank the editor Stefan Trautmann, the two anonymous reviewers, Hélène Huber for their helpful comments and the LEMMA, University Paris 2 Panthéon-Assas for its financial support.