On the Perceived Value of Money: The Reference Dependence of Currency Numerosity Effects

Money illusion research shows that the nominal (face) value of money affects consumer perceptions of its real value. Recent mixed findings on consumer val-uations in different currencies suggest that the underlying anchoring and adjust-ment processes are complex. We develop a framework to identify boundary con-ditions that specify the direction of anchoring effects on valuations in different currencies. Consumers anchor on the numerosity of the nominal difference be-tween prices and salient referents (e.g., budgets) when evaluating transactions. Support for our framework comes from a series of experiments that evoke different reference standards. We discuss implications and opportunities for future research. Market transactions require people to assign a monetaryvalue to the goods or services to be exchanged. Shafir, Diamond, and Tversky (1997) showed experimentally that people rely on the nominal rather than real value of money when making such decisions. In particular, the face value of an amount of money affected participants ’ preferences to a greater extent than the purchasing power of that amount (accounting for interest and inflation). This focus on nominal rather than real value when evaluating transactions was de-scribed in the economics literature almost 80 years ago by Fisher (1928), who termed it “money illusion. ” Money il-lusion not only biases individual decisions but may also have profound economic consequences in the aggregate