Euro Illusion - Currency Numerosity Effects on the Perceived Value of Transactions

Most people are introduced to the concept of money as children, when they have no real way of assessing its value. In lieu of any concrete understanding, children generally fall back on the more-is-better philosophy. (Ask a child to choose between a stack of $1s or a single $20, and the stack will usually win out.) But this simplistic view changes when we grow up, right? Maybe not, say Professors Dilip Soman, Klaus Wertenbroch and Amitava Chattopadhyay. They explore the topic in their recent study of how the denomination of money, or its numerosity (the number units into which it is partitioned), affects one’s perception of its value, offering new insights into how the currency changes might affect buying patterns.

by Amitava Chattopadhyay,Klaus Wertenbroch, Dilip Soman

The introduction of the Euro as a common currency in 12 European countries on January 1, 2002, raises an interesting question: “How will consumers’ perception of value be affected by the new currency”?

Dilip Soman, Associate Professor of Marketing at the Hong Kong University of Science and Technology, and INSEAD’s Klaus Wertenbroch, Associate Professor of Marketing, and Amitava Chattopadhyay, the L’Oréal Chaired Professor of Marketing, Innovation & Creativity, explore the topic in their recent study of how the denomination of money, or its numerosity (the number units into which it is partitioned), affects one’s perception of its value.

As it turns out, studies can be traced back to the 1940s, when research on chickens showed that one kernel split into four pieces serves as a better reinforcer than one single kernel. Similarly, a 1989 study revealed that rats prefer eating four, 75mg pellets of food to a single 300mg pellet. And economic literature as far back as 1920s has suggested that people tend to focus on nominal rather than real value when making economic decisions, a phenomenon called ‘money illusion.’

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