The medial prefrontal cortex exhibits money illusion

Abstract

Behavioral economists have proposed that money illusion, which is a deviation from rationality in which individuals engage in nominal evaluation, can explain a wide range of important economic and social phenomena. This proposition stands in sharp contrast to the standard economic assumption of rationality that requires individuals to judge the value of money only on the basis of the bundle of goods that it can buy-its real value-and not on the basis of the actual amount of currency-its nominal value. We used fMRI to investigate whether the brain's reward circuitry exhibits money illusion. Subjects received prizes in 2 different experimental conditions that were identical in real economic terms, but differed in nominal terms. Thus, in the absence of money illusion there should be no differences in activation in reward-related brain areas. In contrast, we found that areas of the ventromedial prefrontal cortex (vmPFC), which have been previously associated with the processing of anticipatory and experienced rewards, and the valuation of goods, exhibited money illusion. We also found that the amount of money illusion exhibited by the vmPFC was correlated with the amount of money illusion exhibited in the evaluation of economic transactions.

Fig. 1.

Diagram of the experimental design. Subjects were informed whether they were in the high- or the low-price condition for the next block of 5 trials. Subjects then saw a number of blue dots for 1.5 s. A number was then presented and subjects had to decide within 1.5 s whether the number of dots on the first screen had been lower or higher. After a response feedback and a short delay, an income screen informed subjects about their monetary reward for the trial.

Fig. 2.

Results from the fMRI experiment. (A) The vmPFC exhibited a stronger BOLD response to income feedback in the high-price than in the low-price condition (12/47/0; P < 0.001 uncorrected; 10-voxel-extent threshold). (B) Beta estimates for the vmPFC at income feedback for different real income bins during high- and low-price conditions. Joint paired t test for real vs. nominal incomes. P < 0.05. (C) Cross-subject correlation between a neural measure of money illusion (given by the difference in vmPFC activation at income feedback between the high- and the low-price conditions) and a questionnaire measure of money illusion (given by responses to hypothetical economic transactions involving house purchases). r = 0.60, P < 0.01.