Money illusion
From InterSciWiki
[edit] PNAS
Bernd Weber, Bernd, Antonio Rangel, Matthias Wibral, and Armin Falk. "The medial prefrontal cortex exhibits money illusion," PNAS 106:5025-5028; (2009): Article #09-01490. March 23, 2009, doi:10.1073/pnas.0901490106. Abstract
Behavioral economists have proposed that money illusion, which is a deviation from rationality in which individuals engage in nominal evaluation, can explain a wide range of important economic and social phenomena. This proposition stands in sharp contrast to the standard economic assumption of rationality that requires individuals to judge the value of money only on the basis of the bundle of goods that it can buy—its real value—and not on the basis of the actual amount of currency—its nominal value. We used fMRI to investigate whether the brain's reward circuitry exhibits money illusion. Subjects received prizes in 2 different experimental conditions that were identical in real economic terms, but differed in nominal terms. Thus, in the absence of money illusion there should be no differences in activation in reward-related brain areas. In contrast, we found that areas of the ventromedial prefrontal cortex (vmPFC), which have been previously associated with the processing of anticipatory and experienced rewards, and the valuation of goods, exhibited money illusion. We also found that the amount of money illusion exhibited by the vmPFC was correlated with the amount of money illusion exhibited in the evaluation of economic transactions.
[edit] Press release
The folly of perceived wealth.
Researchers have found the brain center for the "money illusion," in which people value a larger amount of money, rather than its relative buying power. The illusion, which posits that people tend to value an increase in income regardless of their ability to buy more, may help explain some people's irrational behaviors around money and wealth. Armin Falk and colleagues show that the illusion stimulates the ventro-medial prefrontal cortex, the part of the brain that processes reward. The researchers used functional magnetic resonance imaging (fMRI) on test subjects, who earned either a high or low "income" during the study and were than allowed to choose items from a high- or low-priced catalogue. The researchers found that subjects with the high income/high-priced catalogue showed significantly higher activation of the brain's reward center than the low income/low-priced catalogue subjects. This increased activation indicates that the subjects were responding to the money illusion, as everyone's relative purchasing power was the same, the authors conclude.
