The Effects of Money Illusion on Consumer Perception: The Euro Changeover

Abstract

The notion of money illusion is an economic phenomenon which has been recognized for a long time. A review of literature shows that at least two different types of money illusion have been covered and discussed by former researchers. One of them refers to a tendency to think in terms of nominal rather than real monetary values. This definition focuses on the time value of money. Most of consumers tend to ignore the time value of their money and just look at what they have in terms of nominal values. Another type of money illusion that has been researched is the nominal value (or called “face value”) of money (currency). It has been found to affect consumers’ perception of real money when they conduct purchases. In this preliminary research, both of these two types of money illusion are discussed and four research propositions are stated.