Published in:IZA Discussion Paper ; No. 1013 CESifo Working Paper Series ; No. 1141 Zurich IEER Working Paper ; No. 177
Extent:
1 Online-Ressource (35 p)
Language:
Not determined
DOI:
10.2139/ssrn.495402
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 1, 2004 erstellt
Description:
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 inefficient 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