Consumer Literacy: The Nominal Consumption Trap

Abstract

The subject of ‘money illusion’ in behavioral economics has gained attraction lately as a factor that is responsible for one of the many incongruities in our decision making, resulting in inadequate socio-economic choices. This study aims to ascertain that the existence of the phenomenon of ‘money illusion’ is an empirical subject having a real impact and consequences in everyday decision making rather than a notional question or one of pure logic. Primary data was collected for this research employing a questionnaire to a sample of 104 individuals. The findings of this research determine the empirical truth of the role of ‘money illusion’ and how individuals fail to differentiate between real variables (variables like price, income, wages adjusted to inflation) and nominal variables. The results from this study indicate that money illusion is a concept which still exists in the society as people find it easier to make decision with respect to the nominal variables which the society provides them with against the real variables and the complexity to convert nominal variables to real variables poses a barrier to an individual in his or her decision making. Also, economies with low inflation rates fuel the presence of money illusion. There is further scope to expand the research to determine the relationship between the comprehensions of ‘money illusion’ amongst investor’s viz-a-viz households.