The “Euro Illusion”: Illusion or Fact?

The changeover to the euro elicited an upsurge of research on the effects of the new currency on consumers’ conversion strategies, price estimates, price evaluations, choices, and purchases. This research includes longitudinal surveys, interviews, and controlled experiments, both natural and in the laboratory. The present article starts with an overview of this research after which it more specifically focuses on research showing an influence of the nominal value, as expressed in different currencies, on price evaluations and consumer choice. For most countries, the transition to the euro led to a lower nominal value currency. A bias known as the “euro illusion” has been documented such that the subjective value of money is influenced in the direction of the nominal value (i.e., in most countries prices and salaries seem smaller when expressed in euros than in the old domestic currency). Although the term was coined in connection with the euro changeover, the nominal representation of a currency has been shown to influence the subjective value of money in unfamiliar currencies other than the euro. Thus, tourists travelling abroad may frequently be subject to such an illusion. Different mechanisms have been proposed to account for the euro illusion. One is the numerosity heuristic and another the anchoring-and-adjustment heuristic in conjunction with biased conversion strategies. The size of the euro illusion is influenced by trade-offs between accuracy and effort. Consistent with this hypothesis, task importance, time constraints, familiarity with the conversion strategy, complexity of the conversion strategy, mood, and attitude towards the country or the currency all influence the size of the euro illusion.     

Estimating the impact of social isolation on subjective health in Europe

Quality & Quantity - We investigate the relationship between social isolation and subjective health, considering that this relationship is potentially affected by endogeneity due to the...     

Accounting for preference dependency in target costing – a note

Review of Quantitative Finance and Accounting - Target costing is a well-established strategic cost management tool in theory and practice. The original target costing model implies independence of...     

Interaction effects of mood induction and nominal representation of price on consumer choice

The transition to the euro in several European countries causes consumers to make mistakes in economic transactions. One mistake referred to as the “euro illusion” is the tendency to evaluate prices on the basis of their nominal representation, thus overestimating or underestimating how expensive products are. Investigating effects of the euro illusion on consumer choice as well as moderating effects of mood, three laboratory experiments were conducted employing convenience samples of students. In Experiment 1 a bias toward the nominal representation was demonstrated when participants chose an unfamiliar (fictitious) large-unit currency (small numbers) for paying the price of a consumer product but chose an unfamiliar small-unit currency (large numbers) for obtaining a salary. The bias was larger for participants who were induced to feel positive and deactivated (calm and relaxed) than for participants who were induced to feel negative and activated (anxious and jittery). The difference in frequencies of choice of currency were replicated in Experiment 2. No effects were, however, found of natural mood assessed by self-report ratings. In Experiment 3 choices of more expensive consumer products with additional features were more frequent when the prices were expressed in the large-unit currency than when expressed in the small-unit currency. Neither in this case did self-reported natural mood affect the choices.     

Reservation wages of first- and second-generation migrants

We analyse the reservation wages of first- and second-generation migrants, based on rich survey data of the unemployed in Germany. Our results confirm the hypothesis that reservation wages increase over migrant generations and over time, suggesting that the mobility benefit of immigration may be limited in time.