Economic Literacy and Money Illusion: An Experimental Perspective

Money can change in nominal value while its purchasing power shifts—and people do not always respond to those changes as economic models might predict. In Economic Literacy and Money Illusion: An Experimental Perspective, Helena Chytilova explores why this matters, how economists’ views of money illusion have changed, and whether economic education can lessen its effects.

From a contested idea to a live research question

The book follows money illusion from its early theorizing through its rejection in the rational-expectations era and its return to attention alongside behavioral economics. This historical thread sets up a broader inquiry: can seemingly small departures from fully rational decision-making influence markets and economic outcomes?

Where money illusion may matter

Chytilova considers the phenomenon across financial, housing, and labor markets, as well as consumption and saving decisions. The discussion also addresses how individual responses may connect to wider economic effects, including through coordination between decision-makers.

Does economic literacy make a difference?

A central question is whether economic education helps people recognize and respond to money illusion. The book considers economic literacy in relation to decision-making, then uses experimental economics to investigate whether different levels of economic training reduce money illusion’s direct and indirect effects.

History, theory, and experimental evidence

Across seven chapters, the study moves from the history of the concept to its applications, the relationship between literacy and money illusion, experimental design, and reported results. That structure makes it useful for readers interested not only in what economists have argued, but also in how the question can be tested.

Who may find it useful?

This book is relevant to readers of behavioral and experimental economics, economics education, and macroeconomics. Students, researchers, policy-minded readers, and anyone interested in how economic understanding shapes decisions will find a focused examination of a subtle but consequential idea.