Money illusion

Eldar Shafir, Peter Diamond, Amos Tversky

Research output: Chapter in Book/Report/Conference proceedingChapter


The term money illusion refers to a tendency to think in terms of nominal rather than real monetary values. Money illusion has significant implications for economic theory, yet it implies a lack of rationality that is alien to economists. This paper reviews survey questions, which are designed to shed light on the psychology that underlies money illusion, regarding people’s reactions to variations in inflation and prices. We propose that people often think about economic transactions in both nominal and real terms and that money illusion arises from an interaction between these representations, which results in a bias towards a nominal evaluation.

Original languageEnglish (US)
Title of host publicationChoices, Values, and Frames
PublisherCambridge University Press
Number of pages21
ISBN (Electronic)9780511803475
ISBN (Print)9780521627498
StatePublished - Feb 1 2019

All Science Journal Classification (ASJC) codes

  • General Psychology


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