Cognitive and emotional factors affecting currency perception

Abstract

Money illusion effect describes the fact that people have the tendency to use the nominal value as an anchor when evaluating the value of goods, and that they neglect the real value of money. In this research we focus on both cognitive and emotional modifications of the money illusion effect. Study 1 investigates the emotional attachment of the Polish to the dollar. Study 2 shows that the money illusion effect can be affected by this emotional attachment to currency. This seems to imply that the emotional attachment can cause an increase in the price evaluation by adding to the purchasing value of the currency an emotion-based value. This is in agreement with the accentuation theory. In Study 3 it was found that the money illusion effect is more prominent for higher absolute values of gains and losses than for smaller ones. This result can be explained in terms of prospect-theory value function.