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The Money Illusion

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Consumers are commonly subject to what economists call ‘the money illusion’, whereby a consumer’s perception of the value of money is influenced by the nominal value of the currency. In other words, it’s psychologically easier for an American consumer to buy a widget for one dollar in the US than it is for that same consumer to purchase the same widget while on a trip in Vietnam for 16,000 Vietnamese dong, the equivalent of one US dollar. INSEAD professors Klaus Wertenbroch and Amitava Chattopadhyay have taken a fresh look at this classic economic conundrum in a recent article published in the Journal of Consumer Research.

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