Interaction effects of mood induction and nominal representation of price on consumer choice

Abstract

Gamble, A. (2005). Perception of Value of Money in Unfamiliar Currencies Department of Psychology, Göteborg University, Sweden.The real value of money as well as the perceived value of money is subject to changes. Inflation and deflation are examples of changes in real value. It has been shown that these changes do not always correspond to changes in subjective value. The money illusion implies that the subjective value of money is biased by the nominal representation in times of inflation or deflation. This thesis examines the related euro illusion referring to an influence of the nominal representation on the subjective value of money when a small-unit currency (high nominal value) is compared to a large-unit currency (low nominal value) or the reverse. In addition the thesis investigates whether accuracy-effort tradeoffs affect the size of the euro illusion. In Study I participants were in four experiments requested to evaluate prices of consumer products in their domestic currencies (Swedish crowns or pound sterling) or in euros, or to make evaluations of prices of low-price and high-price essential and non-essential consumer products in fictitious currencies with different exchange rates. Either a positive or a negative attitude was induced. In three experiments Study II tested the effects of mood on choices between two fictitious currencies for making payment or obtaining a salary as well as on choices between low-price and high-price consumer products with prices expressed in fictitious currencies. Mood was induced in one experiment and in two experiments natural mood was assessed. Three experiments in Study III investigated the role of income on the euro illusion. A reverse euro illusion was hypothesized because when the income is known, the prices of consumer products would be compared to the income, and thus they would be evaluated as less expensive in a currency with a large nominal value than in a currency with a small nominal value (called the compression effect). In Study IV three experiments systematically varied either the actual or subjective value for the same nominal value of money. The results of the conducted studies demonstrated the expected bias toward the nominal representation of prices (the euro illusion) when prices were expressed in fictitious currencies. This was done for both evaluations of prices of consumer goods, of choices of currency, and of choices between consumer products. Furthermore, both changes and no changes in the nominal representation affected price evaluations. In support of the role of accuracy-effort tradeoffs, the euro illusion was reduced by a more important task (evaluation of prices of high-price essential products), a negative attitude, and an induced activated negative mood, as well as a simple exchange rate.

The “Euro Illusion”: Illusion or Fact?

“…For instance, in an experiment where participants were confronted with hypothetical choices of consumer products, with prices in fictitious currencies with different nominal values Gamble et al (2005; for similar findings, see Soman et al 2002) demonstrated that more expensive products equipped with additional attractive features were chosen more often in a low nominal value currency than in a high nominal value currency. Soman et al (2002) tested the possibility of a reversal of the effect of the nominal value, arguing that not only prices but also salaries are considered in making economic decisions.…”

“…In a similar vein, Gamble et al (2005) showed that mood has a moderating influence on the effect of the nominal value. These authors demonstrated a stronger influence of the nominal value on choices of currency for paying for a product or receiving a salary when participants were in a positive mood than when they were in a negative mood.…”

“…The effect of the nominal representation, as expressed in different currencies, on the subjective value of money has been investigated in different situations relevant to consumer behaviour including price estimates and evaluations (Gamble 2006;Gamble et al 2002Gamble et al , 2005, attractiveness of salaries (Jonas et al 2002), perception of product quality (Molz and Gielnik 2006), and spending behaviour (Cannon and Cipriani 2003;Raghubir and Srivastava 2002;Soman et al 2002). It has also being demonstrated in contexts involving stocks.…”

The Euro Illusion in Consumers’ Price Estimation: An Italian–Irish Comparison in the Third Year of the Euro

“…This umbrella term refers to a series of transient asymmetries that can be observed when different groups of participants are asked to perform the same judgment or choice task in a different currency (Aalto-Setälä and Raijas 2003;Gamble et al 2002Gamble et al , 2005Jonas et al 2002;Raghubir and Srivastava 2002;Soman et al 2002;Tyszka and Przybyszewski 2006). The mere difference between the nominal values of two different currencies in which the same price-related task is performed (for instance, the euro and the Italian lira) produces asymmetries in consumers' intuitive judgments or choices, despite the fact that the real value of money is the same.…”

Perceived inflation and expected future prices in different currencies

“…Furthermore, with the aim of examining effects of the nominal representation, the price increases were expressed in the same currency, either actual currencies (Swedish Crowns or Euros) or fictitious currencies with different units. As in several previous experiments (Gamble, 2006;Gamble et al, 2002Gamble et al, , 2005, the fictitious currencies were used to prevent confounding the effect of the nominal representation with effects of expectations or other effects of familiarity with the currency. The participants were presented the current prices and the prices a year ago, a time span which has been found not to impair memory substantially (Kemp, 1991).…”