Money Illusion and Household Finance

Thomas Stephens and Jean-Robert Tyran
Additional contact information
Thomas Stephens: Department of Economics, WU Vienna University of Economics and Business

No 16-14, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: We elicit money illusion and match it with financial and sociodemographic data from official registers on a quasi-representative sample of the Danish population. We find that people who are more prone to money illusion hold more of their gross wealth in nominal assets, including bank deposits and bonds, and less in real assets, including real estate and stocks. This bias is robust to controls for education, income, cognitive ability and other relevant characteristics. We further find that money illusion is a costly bias: 10-year portfolio returns are about 10 percentage points lower for individuals with high money illusion.

Keywords: money illusion; loss aversion; household finance (search for similar items in EconPapers)
JEL-codes: C91 D03 D14 E21 G11 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-11
New Economics Papers: this item is included in nep-cbe, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.econ.ku.dk/english/research/publications/wp/dp_2016/1614.pdf (application/pdf)

Related works:
Working Paper: Money Illusion and Household Finance (2016)
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:kud:kuiedp:1614

Access Statistics for this paper

More papers in Discussion Papers from University of Copenhagen. Department of Economics Oester Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().