Effect of Face Value on Product Valuation in Foreign Currencies

Priya Raghubir and Joydeep Srivastava

Journal of Consumer Research, 2002, vol. 29, issue 3, 335-47

Abstract: This article examines systematic differences in people's spending behavior when using foreign currencies. Rather than overspend or underspend in general, we show that individuals' valuation of a product in an unfamiliar foreign currency is biased toward its nominal value--its face value--with inadequate adjustment for the exchange rate. This leads to underspending when the face value of a foreign currency is a multiple of an equivalent unit of a home currency (e.g., 4 Malaysian ringgits = 1 U.S. dollar) and overspending when it is a fraction (e.g., .4 Bahraini dinar = 1 U.S. dollar). Four studies demonstrate the robustness of the face value effect across different currencies, exchange rate frames, and with samples from two countries, and two studies show that ability-related factors such as time pressure and experience moderate the face value effect. The article concludes by discussing the theoretical implications of the findings. Copyright 2002 by the University of Chicago.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jconrs:v:29:y:2002:i:3:p:335-47

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