Are individuals in China prone to money illusion?

Abstract

We replicate the landmark study of Shafir, Diamond and Tversky (1997) to examine whether individuals in China are prone to money illusion. We find that money illusion is prevalent in China as well. Respondents in the Chinese sample are often somewhat more likely to base decisions on the real monetary value of economic transactions compared to respondents in the U.S. sample. If asked explicitly to evaluate a transaction in terms of happiness or satisfaction instead of economic terms, money illusion among respondents in the Chinese sample is comparable to money illusion among respondents in the U.S. sample.