Pragma Synesi – interesting bits

Compendium of interesting bits I come across, with an occasional IMHO

The value of a coin or banknote depends on its familiarity

It seems money is not just money…

From The Economist:
Irrational economics
Look and feel

Apr 3rd 2008
From The Economist print edition

The value of a coin or banknote depends on its familiarity

IF RATIONALITY reigned supreme in economics, travellers would spend their foreign cash based upon its value in the currency of their home country. All too often, however, they actually treat foreign banknotes as though they were Monopoly money. Given the unfamiliarity of other countries’ currencies that is not, perhaps, surprising. But a piece of research about to be published in Psychonomic Bulletin & Review by Adam Alter and Daniel Oppenheimer, a pair of psychologists at Princeton University, shows that something similar is true even of familiar currencies, depending on the form they come in. In particular, Dr Alter and Dr Oppenheimer have demonstrated that the perceived value of a dollar changes with the form that dollar takes.

For the first part of their study Dr Alter and Dr Oppenheimer picked 37 “volunteers” at random from the university’s canteen. They asked them to estimate how many simple objects—gumballs, paperclips and pencils—they could purchase with either a standard dollar bill or a Susan B. Anthony dollar coin that was presented to them. Susan B. Anthony dollars are legal tender but, having been produced only from 1979-81 and then again in 1999, they are rarely seen in circulation.

After the volunteers had made their estimates, they were asked to indicate on a scale of one to seven how familiar they were with either the banknote or the coin. Dr Alter and Dr Oppenheimer were not surprised to find that all participants were less familiar with the coin than with the banknote. Nor were they that surprised to find a difference in how the participants valued coin and note (the expectation that there would be a difference was, after all, the point of doing the experiment). They were, however, flabbergasted by the size of the difference. People offered the banknote believed, on average, that they could use it to buy 83 paperclips, 72 napkins or 46 sweets. Those offered the coin thought 39 paperclips, 51 napkins or 27 sweets. In other words, the note was believed to be almost twice as valuable as the coin.

To check this result was not caused by some prejudice in favour of paper money and against coinage, Dr Alter and Dr Oppenheimer repeated the experiment offering either two single dollar bills or a single two-dollar bill. Like dollar coins, two-dollar bills are rarely found in circulation. The second set of results was virtually the same as the first. And when the study was conducted a third time with a real dollar bill and a subtly doctored version that had had, among other things, George Washington’s head reversed, the results were, again, nearly the same. People, it seems, literally value familiarity.

Whether this observation has wider significance is unclear, but it may. Familiarity takes time to build up. It may have been unfamiliarity with the currency itself, rather than with its face value, which caused price gouging (or, at least, allegations of price gouging) when the euro was introduced. With that in mind, it might be wise for America’s Federal Reserve to watch retail prices carefully when it introduces a new series of banknotes in August. With money, it seems, it is not familiarity, but unfamiliarity that breeds contempt.


June 20, 2008 - Posted by | behaviour, psychology | ,

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