Money illusion, financial literacy and numeracy: experimental evidence
Elisa Darriet  1@  , Marianne Guille  2@  , Jean-Christophe Vergnaud  3@  , Mariko Shimizu  2@  
1 : Laboratoire d'économie mathématique et de microéconomie appliquée  (LEMMA)  -  Site web
Sorbonne Universités, Université Paris II - Panthéon-Assas : EA4442
Université Paris 2, LEMMA 4 rue Blaise Desgoffe 75006 Paris -  France
2 : Laboratoire d'économie mathématique et de microéconomie appliquée  (LEMMA)
université Paris 2, Panthéon-Assas : EA4442
3 : CES, Université Paris 1 Pantheon Sorbonne
CES, Université Paris 1, University Paris 1 Panthéon Soronne
MSE, 106-112, Bld de l'Hôpital, 75013 Paris -  France

Money illusion is usually defined as the inability of individuals to take into account evolution of price in their nominal calculation. Individuals are no longer rational as defined by economic theory. Empirical evidence shows that money illusion matters in financial decisions particularly those made by households. In this article we analyse money illusion at the individual level and study its relation with numeracy and financial literacy. In order to do so we propose an original and precise measure via an experimental task and analyse the effects of financial literacy and numeracy via usual measures. This task consists in a series of choices between a pair of simple bonds which returns are influenced by inflation (deflation) rates. It provides a fine measure of money illusion which is correlated with usual measures of it (questionnaires). Moreover we show that money illusion depends on the context of the choices and on the participants' skills. Individuals with financial knowledge, and to a lesser extent numeracy skills, are less sensitive to money illusion than others.

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