Money illusion, financial literacy and numeracy: Experimental evidence

Elisa Darriet, Marianne Guille, Jean-Christophe Vergnaud and Mariko Shimizu

Journal of Economic Psychology, 2020, vol. 76, issue C

Abstract: 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.

Keywords: Behavioral sciences; Money illusion; Design of experiments; Behavioral finance; Financial literacy; Numeracy (search for similar items in EconPapers)
JEL-codes: C9 D1 E2 G4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167487019300352
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Money illusion, financial literacy and numeracy: experimental evidence (2020)
Working Paper: Money illusion, financial literacy and numeracy: experimental evidence (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:76:y:2020:i:c:s0167487019300352

DOI: 10.1016/j.joep.2019.102211

Access Statistics for this article

Journal of Economic Psychology is currently edited by G. Antonides and D. Read

More articles in Journal of Economic Psychology from Elsevier
Bibliographic data for series maintained by Catherine Liu ().