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Are Chinese Individuals Prone to Money Illusion?

Tinbergen Institute Discussion Paper No. 11-149/4

54 Pages Posted: 17 Oct 2011 Last revised: 25 Mar 2014

Heleen Mees

Independent

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Date Written: March 25, 2014

Abstract

We replicate the landmark study of Shafir, Diamond and Tversky (1997) to examine whether individuals in China are prone to money illusion. We find that money illusion is prevalent in China as well. Respondents in the Chinese sample are often somewhat more likely to base decisions on the real monetary value of economic transactions compared to respondents in the U.S. sample. If asked explicitly to evaluate a transaction in terms of happiness or satisfaction, instead of economic terms, money illusion among respondents in the Chinese sample is comparable to money illusion among respondents in the U.S. sample.

Keywords: Money illusion, Experimental economics, Financial behavior, Psychology of money

JEL Classification: C91

Suggested Citation

Mees, Heleen and Franses, Philip Hans, Are Chinese Individuals Prone to Money Illusion? (March 25, 2014). Tinbergen Institute Discussion Paper No. 11-149/4. Available at SSRN: https://ssrn.com/abstract=1945090 or http://dx.doi.org/10.2139/ssrn.1945090

Heleen Mees (Contact Author)

Independent ( email )

No Address Available

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

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