Amelie Gamble

Euro Illusion: Psychological Insights into Price Evaluations with a Unitary Currency

Gamble, A. (2005). Perception of Value of Money in Unfamiliar Currencies Department of Psychology, Goteborg University, Sweden. The real value of money as well as the perceived value of money is subject to changes. Inflation and deflation are examples of changes in real value. It has been shown that these changes do not always correspond to changes in subjective value. The money illusion implies that the subjective value of money is biased by the nominal representation in times of inflation or deflation. This thesis examines the related euro illusion referring to an influence of the nominal representation on the subjective value of money when a small-unit currency (high nominal value) is compared to a large-unit currency (low nominal value) or the reverse. In addition the thesis investigates whether accuracy-effort tradeoffs affect the size of the euro illusion. In Study I participants were in four experiments requested to evaluate prices of consumer products in their domestic currencies (Swedish crowns or pound sterling) or in euros, or to make evaluations of prices of low-price and high-price essential and non-essential consumer products in fictitious currencies with different exchange rates. Either a positive or a negative attitude was induced. In three experiments Study II tested the effects of mood on choices between two fictitious currencies for making payment or obtaining a salary as well as on choices between low-price and high-price consumer products with prices expressed in fictitious currencies. Mood was induced in one experiment and in two experiments natural mood was assessed. Three experiments in Study III investigated the role of income on the euro illusion. A reverse euro illusion was hypothesized because when the income is known, the prices of consumer products would be compared to the income, and thus they would be evaluated as less expensive in a currency with a large nominal value than in a currency with a small nominal value (called the compression effect). In Study IV three experiments systematically varied either the actual or subjective value for the same nominal value of money. The results of the conducted studies demonstrated the expected bias toward the nominal representation of prices (the euro illusion) when prices were expressed in fictitious currencies. This was done for both evaluations of prices of consumer goods, of choices of currency, and of choices between consumer products. Furthermore, both changes and no changes in the nominal representation affected price evaluations. In support of the role of accuracy-effort tradeoffs, the euro illusion was reduced by a more important task (evaluation of prices of high-price essential products), a negative attitude, and an induced activated negative mood, as well as a simple exchange rate.The Euro illusion is a phenomenon related to the money illusion whereby people are biased toward the nominal representation of the Euro (the numbers printed on notes and coins) when evaluating prices in the new currency. In Study 1 the Euro illusion was demonstrated in telephone interviews of a Swedish population-based sample. However, no Euro illusion was found for British students in Study 2. An additional two studies employing student samples demonstrated the Euro illusion for fictitious unknown currencies in that prices of goods or services were evaluated as less expensive when the money unit was larger. An exception, however, was that prices were evaluated as more expensive when the money unit was very small (like the Italian Lira). Furthermore, the illusion was weaker or absent for low-price essential goods or services or for an induced negative attitude toward the currency change.

Perception of Value of Money in Unfamiliar Currencies

Gamble, A. (2005). Perception of Value of Money in Unfamiliar Currencies Department of Psychology, Goteborg University, Sweden. The real value of money as well as the perceived value of money is subject to changes. Inflation and deflation are examples of changes in real value. It has been shown that these changes do not always correspond to changes in subjective value. The money illusion implies that the subjective value of money is biased by the nominal representation in times of inflation or deflation. This thesis examines the related euro illusion referring to an influence of the nominal representation on the subjective value of money when a small-unit currency (high nominal value) is compared to a large-unit currency (low nominal value) or the reverse. In addition the thesis investigates whether accuracy-effort tradeoffs affect the size of the euro illusion. In Study I participants were in four experiments requested to evaluate prices of consumer products in their domestic currencies (Swedish crowns or pound sterling) or in euros, or to make evaluations of prices of low-price and high-price essential and non-essential consumer products in fictitious currencies with different exchange rates. Either a positive or a negative attitude was induced. In three experiments Study II tested the effects of mood on choices between two fictitious currencies for making payment or obtaining a salary as well as on choices between low-price and high-price consumer products with prices expressed in fictitious currencies. Mood was induced in one experiment and in two experiments natural mood was assessed. Three experiments in Study III investigated the role of income on the euro illusion. A reverse euro illusion was hypothesized because when the income is known, the prices of consumer products would be compared to the income, and thus they would be evaluated as less expensive in a currency with a large nominal value than in a currency with a small nominal value (called the compression effect). In Study IV three experiments systematically varied either the actual or subjective value for the same nominal value of money. The results of the conducted studies demonstrated the expected bias toward the nominal representation of prices (the euro illusion) when prices were expressed in fictitious currencies. This was done for both evaluations of prices of consumer goods, of choices of currency, and of choices between consumer products. Furthermore, both changes and no changes in the nominal representation affected price evaluations. In support of the role of accuracy-effort tradeoffs, the euro illusion was reduced by a more important task (evaluation of prices of high-price essential products), a negative attitude, and an induced activated negative mood, as well as a simple exchange rate.The Euro illusion is a phenomenon related to the money illusion whereby people are biased toward the nominal representation of the Euro (the numbers printed on notes and coins) when evaluating prices in the new currency. In Study 1 the Euro illusion was demonstrated in telephone interviews of a Swedish population-based sample. However, no Euro illusion was found for British students in Study 2. An additional two studies employing student samples demonstrated the Euro illusion for fictitious unknown currencies in that prices of goods or services were evaluated as less expensive when the money unit was larger. An exception, however, was that prices were evaluated as more expensive when the money unit was very small (like the Italian Lira). Furthermore, the illusion was weaker or absent for low-price essential goods or services or for an induced negative attitude toward the currency change.

A happier and less sinister past, a more hedonistic and less fatalistic present and a more structured future: time perspective and well-being

Background. Previous studies have established a link between how people relate to their past, present, and future (i.e., time perspective) and subjective well-being (i.e., life satisfaction, positive and negative affect). Time perspective comprises five dimensions: Past Positive, Past Negative, Present Hedonistic, Present Fatalistic, and Future. Life satisfaction can also be evaluated in relation to different time frames. Moreover, approach related positive affect is associated to a different concept of well-being labeled psychological well-being. In the present study we extend previous findings by investigating the effect of time perspective on the time frame of evaluations of life satisfaction (past, present, future) and by investigating the relationship between time perspective and psychological well-being. Method. Questionnaires on time perspective (Zimbardo’s Time Perspective Inventory), temporal life satisfaction (Temporal Satisfaction with Life Scale), affect (Positive Affect and Negative Affect Schedule), and psychological well-being (Scales of Psychological Well-Being—short version) were answered by 453 individuals. Two different structural equation models were tested, one of the relationship between time perspective and temporal life satisfaction, and the other of the relationship between time perspective, affect and psychological well-being. Results. Time perspective affected life satisfaction depending on the time scale on which it was evaluated—memory of a negative past influenced life satisfaction in all time frames, and a positive view of the past influenced both past and future life satisfaction. Moreover, less rumination about past negative events (i.e., low score on Past Negative), the tendency to take risks in the present to achieve happy feelings and/or avoid boredom (i.e., high scores on Present Hedonistic), and a less hopeless and pessimistic view about the present (low scores on Present Fatalistic) were associated with higher levels of psychological well-being and positive affect. These same time perspective dimensions were associated with lower levels of negative affect. The Future time perspective dimension (i.e., approaching life with self-control, punctuality, and planning for the future) was associated with both psychological well-being and positive affect. Conclusions. High levels of both subjective and psychological well-being are related to a happier and a less sinister past, a more hedonistic and less fatalistic present, as well as to a more structured future.

Learning the value of a new currency from prices.

In European countries, field studies investigate how citizens acquire knowledge of the new currency, the euro. In 3 laboratory experiments, the authors recruited 168 undergraduates to examine whether such accurate knowledge is acquired from learning prices in the new currency. The results show fast learning of prices of duration of cellular phone calls (quantity) when the prices were proportional to quantity. Inferences of call duration from given prices were likewise found to be accurate. Lower accuracy was however observed for one-to-many mappings of quantity on price and the inverse one-to-many mappings of price on quantity. Price variation may be an important reason for the difficulty in learning the value of the new currency observed in field studies.

Learning the value of money from stochastically varying prices.

In 3 experiments, the authors investigated learning of the value of money from product prices in an unfamiliar currency when the prices are proportional to quantity. In support of the second stage of a hypothesized 2-stage process of learning, Experiment 1, in which 32 undergraduates participated, shows that response times for inferences of quantity are longer when participants are presented with quantity-price pairs than when they are presented with price-quantity pairs. Experiments 2 and 3, in which 54 and 34 undergraduates participated, respectively, show that (a) stochastic price variation causes systematic errors in the learning of unit prices from quantity-price pairs as a result of judgmental regression effects and (b) in support of the 2-stage learning hypothesis, inferences of quantity are the inverse of the learned unit prices.

Influences on current mood of eliciting life-satisfaction judgments

Subjective well-being (SWB) has attracted a plethora of cross-disciplinary research in recent years. As measured in this research, SWB includes a cognitive and an affective component. We hypothesize that eliciting the cognitive component by means of life-satisfaction judgments activates thoughts about positive and negative life circumstances that influence the affective component (current mood or memory of the frequency of past positive and negative affects). Experiment 1 demonstrates an expected asymmetrical carryover effect in that current mood correlates higher with life-satisfaction judgments performed before than after the measurements of current mood. In Experiment 2, it is found that inducing current mood by means of rewarding performance does not influence the life-satisfaction judgments. In contrast and consistent with Experiment 1, Experiment 3 shows such an influence when current mood is induced by thinking about positive and negative life circumstances.

Emotional well‐being and time pressure

We propose a conceptual model of how time pressure affects emotional well-being associated with mundane routine activities. A selective review of research in several areas affirms the plausibility of the conceptual model, which posits negative effects on emotional well-being of insufficient time allocated to restorative and other activities instrumental for attaining desirable work, family life, and leisure goals. Previous research also affirms that practicing time management can have indirect positive effects by decreasing time pressure, whereas material wealth can have both negative indirect effects and positive indirect effects by increasing and decreasing time pressure, respectively. Several issues remain to be studied empirically. The conceptual model is a ground for additional, preferably cross-cultural, research.

Storytelling as a means to increase consumers’ processing of financial information

Purpose – The purpose of this paper is to investigate whether a narrative compared to a traditional fact-related format of financial information elicits more involved processing of such information by consumers and therefore more informed choices of retirement savings. Design/methodology/approach – A total of 394 undergraduates were recruited to three experiments. In Experiments 1 and 2 participants presented with information about a mutual fund were randomly assigned to one of four conditions (narrative format vs fact-related format crossed with optimistic vs pessimistic financial forecast). In both experiments dependent variables were positive affect, emotive response and purchase intention, and in Experiment 2 also scepticism about the information. Involvement and financial knowledge were furthermore measured in Experiment 2. In Experiment 3 information was presented about a savings account. Participants were randomly assigned to either a condition with a narrative or a fact-related information format....

Breaking the ice of low financial involvement

Purpose – The purpose of this paper is to investigate how trust in the sender of financial information and a narrative vs fact-related format of the information influence intentions to save in a mutual fund. Design/methodology/approach – In Experiment 1, 186 undergraduates participate and in Experiment 2, 434 Swedish citizens between 18 and 70 years randomly chosen from a consumer panel. In both experiments participants are randomized to two conditions in which they are presented with the same information about a mutual fund in a narrative or a traditional fact-related format. In four different between-groups conditions crossed with information format, pre-tested descriptions of different fictitious banks are presented. The descriptions are combined in a fractional factorial design such that one bank is low in the three trust determinants of competence, benevolence and transparency, whereas the other three banks are high in one of the trust determinants but lower in the others. Ratings are made of the inf...