€1 ≠ €1: Coins Versus Banknotes and People’s Spending Behavior

Abstract

Previous research has shown that people attach a different value to exemplars of money having similar nominal values but dissimilar physical features. In particular, recent data have suggested that American people attach higher value to $1 banknotes than to $1 coins. These results have been explained in terms of familiarity since the $1 coin was introduced recently and is, therefore, less familiar than the $1 banknote. We suggest an alternative explanation based on the different mental accounts associated with the use of coins and banknotes. Experiments 1–3 show that people are willing to pay more when using coins than banknotes regardless of their familiarity with these exemplars of money. Experiment 3 also shows that people overestimate the amount of money at their disposal when they are provided with banknotes and underestimate it when using coins. Experiment 4 reveals that people using banknotes are more sensitive to discounts than people using coins. Finally, Experiment 5 indicates that people implicitly associate coins with low value products and banknotes with high value products.

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