Money illusion and coordination failure

Autor(en)
Ernst Fehr, Jean-Robert Tyran
Abstrakt

Economists long considered money illusion to be largely irrelevant. Here we show, however, that money illusion has powerful effects on equilibrium selection. If we represent payoffs in nominal terms, choices converge to the Pareto inferior equilibrium; however, if we lift the veil of money by representing payoffs in real terms, the Pareto efficient equilibrium is selected. We also show that strategic uncertainty about the other players' behavior is key for the equilibrium selection effects of money illusion: even though money illusion vanishes over time if subjects are given learning opportunities in the context of an individual optimization problem, powerful and persistent effects of money illusion are found when strategic uncertainty prevails.

Organisation(en)
Institut für Volkswirtschaftslehre, Wiener Zentrum für Experimentelle Wirtschaftsforschung
Externe Organisation(en)
Universität Zürich (UZH)
Journal
Games and Economic Behavior
Band
58
Seiten
246–268
Anzahl der Seiten
23
ISSN
0899-8256
DOI
https://doi.org/10.1016/j.geb.2006.04.005
Publikationsdatum
2007
Peer-reviewed
Ja
ÖFOS 2012
502045 Verhaltensökonomie, 502021 Mikroökonomie
Link zum Portal
https://ucrisportal.univie.ac.at/de/publications/money-illusion-and-coordination-failure(0cc7185a-9c6d-492a-8988-0067dec82f28).html