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