Keynes's animal spirits vindicated: an analysis of recent empirical and neural data on money illusion

Experimental economics and neuroeconomics are likely to provide new insights on the individual and sub-individual (neurobiological processes) anchoring of money illusion. In particular, some recent brain studies show that we appear more "motivated" and "rewarded" by nominal rather than real monetary values. The sensitivity of the reward brain system to the nominal format of money, due to the salience of this format, may explain money illusion at a biological level. If money illusion is thus rooted in our nature it sounds vain to expect from public monetary policies an elimination of this behavioral anomaly. On the contrary, we contend that the theoretical admission of the money illusion phenomenon, by early 20th century economists such as Keynes or Fisher, is now vindicated by experimental and neurobiological data, in spite of its long occultation by monetarist economists.