Revisiting “money illusion”: Replication and extension of Shafir, Diamond, and Tversky (1997)

Abstract

Abstract Shafir et al. (1997) described money illusion as people’s inclination to think of money without taking inflation sufficiently into account, i.e., in nominal terms rather than in real terms. We successfully replicated Problems 1 to 4 of Shafir, Diamond, and Tversky’s study (1997) on money illusion (MTurk; N = 604). We found effect sizes in line with the original ones for assessments of income (Problem 1; original: Cramer’s V = 0.26, 95% CI [0.17, 0.37]; replication: V = 0.28 [0.21, 0.36]), transactions (Problem 2; original: 48% [42%, 52%]; replication: 70% [66%, 73%]), sales and consumption (Problem 3; original buy: 38% [33%, 43%]; replication buy: 47% [43%, 51%]; original sell: 43%% [38%, 48%]; replication sell: 43% [39%, 47%]), and contracts (Problem 4; original: V = 0.25 [0.13, 0.42]; replication: V = 0.17 [0.10, 0.25]). With an added extension, we found no support for the notion that knowing about or correctly estimating the inflation rate affected money illusion. We discuss theoretical implications for the study of money illusion and the psychological meaning of inflation, as well as for the understanding of the antecedents of money illusion. All data, code, and materials are available on https://osf.io/rv9mw/ .