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
Date Written: March 25, 2014
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: Suggested Citation