Are Chinese Individuals Prone to Money Illusion?
Philip Hans Franses
Erasmus University Rotterdam (EUR) - Department of Econometrics
March 25, 2014
Tinbergen Institute Discussion Paper No. 11-149/4
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.
Number of Pages in PDF File: 54
Keywords: Money illusion, Experimental economics, Financial behavior, Psychology of money
JEL Classification: C91
Date posted: October 17, 2011 ; Last revised: March 25, 2014