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A Nickel Ain't Worth a Dime Anymore: The Illusion of Money and the Rapid Encoding of Its True Value

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  • Rongjun Yu
  • Yi Huang

Abstract

People often evaluate money based on its face value and overlook its real purchasing power, known as the money illusion. For example, the same 100 Chinese Yuan can buy many more goods in Tibet than in Beijing, but such difference in buying power is usually underestimated. Using event related potential combined with a gambling task, we sought to investigate the encoding of both the real value and the face value of money in the human brain. We found that the self-reported pleasantness of outcomes was modulated by both values. The feedback related negativity (FRN), which peaks around 250ms after feedback and is believed to be generated in the anterior cingulate cortex (ACC), was only modulated by the true value but not the face value of money. We conclude that the real value of money is rapidly encoded in the human brain even when participants exhibit the money illusion at the behavioral level.

Suggested Citation

  • Rongjun Yu & Yi Huang, 2013. "A Nickel Ain't Worth a Dime Anymore: The Illusion of Money and the Rapid Encoding of Its True Value," PLOS ONE, Public Library of Science, vol. 8(1), pages 1-8, January.
    • Handle: RePEc:plo:pone00:0055025
    DOI: 10.1371/journal.pone.0055025
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    References listed on IDEAS

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    4. Alison Harris & Ralph Adolphs & Colin Camerer & Antonio Rangel, 2011. "Dynamic Construction of Stimulus Values in the Ventromedial Prefrontal Cortex," PLOS ONE, Public Library of Science, vol. 6(6), pages 1-13, June.
    5. Mayer, Michelle L. & Rozier, R. Gary, 2000. "Money illusion among health care providers: should we adjust for inflation in analyses of provider behavior?," Social Science & Medicine, Elsevier, vol. 51(3), pages 395-405, August.
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    1. Li, Jianbiao & Wang, Wei & Cao, Qian & Niu, Xiaofei, 2023. "Transcranial stimulation over the medial prefrontal cortex increases money illusion," Journal of Economic Psychology, Elsevier, vol. 99(C).

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