J Consum Policy (2007) 30:337–354
DOI 10.1007/s10603-007-9041-6
ORIGINAL PAPER
The Euro Illusion in Consumers’ Price Estimation:
An Italian–Irish Comparison in the Third Year
of the Euro
Fabio Del Missier & Nicolao Bonini & Rob Ranyard
Received: 22 November 2006 / Accepted: 9 June 2007 / Published online: 28 August 2007
# Springer Science + Business Media B.V. 2007
Abstract The euro illusion is a transient phenomenon that consists of currency-related
asymmetries in the intuitive judgment of product prices made by consumers. The results of
a cross-country study in the third year after the introduction of the euro show a strong price
estimation asymmetry in a country with an extreme exchange rate (Italy) and a weaker
effect in a country in which the nominal values of the new and the old currency are much
closer (Ireland). These results rule out proposed explanations of the euro illusion in price
estimation that assume the sole influence of plausible anchors (reference prices stored in
memory within the plausible price range), supporting instead accounts also endorsing the
role of implausible anchors (reference prices outside the plausible price range). Beyond
contributing to our theoretical understanding of the euro illusion, this research starts to unveil
the interplay between structural factors (i.e., the currency exchange rate) and psychological
mechanisms that produce long-lasting difficulties for consumers after a monetary changeover.
Keywords Price estimation . Euro illusion . Currency change . Adaptation .
Anchoring and adjustment . Reference price . Cross-country comparison
PsycINFO classification 2340 . 3920
JEL classification D14 . D83
F. Del Missier (*)
Department of Psychology, University of Trieste, Via S. Anastasio 12, 34134 Trieste, Trieste, Italy
e-mail: [email protected]
N. Bonini
Department of Cognitive Sciences and Education, University of Trento, Via Matteo del Ben, 5,
38068 Rovereto, Trento, Italy
e-mail: [email protected]
R. Ranyard
Department of Psychology and Life Sciences, University of Bolton, Deane Rd., Bolton, Lancs BL3 5JA, UK
e-mail: [email protected]
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F. Del Missier, et al.
When dealing with unfamiliar or newly introduced currencies, consumers are prone to biases
related to the nominal value of the money. In this paper, the focus is on the euro illusion, a
transient phenomenon of currency-related asymmetries in the intuitive judgments of product
prices. In particular, the paper will present and discuss the results of a cross-country study that
has bearings on explanations of the euro illusion in price estimation and raises important
policy implications related to the processes of adaptation after the euro changeover. The
results support an account of the euro illusion boosting the previously debated role of
implausible anchors (Jonas et al. 2002) as well as showing that the process of adaptation can
be very slow when the exchange rate is extreme and the prices of the products cannot be
learnt through a straightforward rescaling process (e.g., Amado et al. 2007; Marques 2007;
Marques and Dehaene 2004). Moreover, the study contributes to unveiling the specific
interplay between structural factors (i.e., the currency exchange rate) and psychological
mechanisms (anchoring processes and conversion strategies) that produces long-lasting
difficulties for consumers’ price estimation after a currency changeover.
First, the paper will introduce the euro illusion and review the price estimation research
related to this phenomenon. Then, the existing accounts of the euro illusion in price
estimation tasks will be described, and critical predictions will be derived from them. Next
follows a description of a cross-country study carried out in Italy and Ireland to test these
predictions. Finally, the results of the study are discussed in relation to explanations of the
euro illusion and consumers’ adaptation processes, emphasizing the implications of the
findings for both consumer research and consumer policy.
The Euro Illusion
A significant phenomenon related to the influence of nominal values on price cognition
after the transition to the euro (but not limited to the euro changeover) is the so-called euro
illusion (Burgoyne et al. 1999; Gamble 2007; Gamble et al. 2002). This umbrella term
refers to a series of transient asymmetries that can be observed when different groups of
participants are asked to perform the same judgment or choice task in a different currency
(Aalto-Setälä and Raijas 2003; Gamble et al. 2002, 2005; Jonas et al. 2002; Raghubir and
Srivastava 2002; Soman et al. 2002; Tyszka and Przybyszewski 2006). The mere difference
between the nominal values of two different currencies in which the same price-related task
is performed (for instance, the euro and the Italian lira) produces asymmetries in consumers’
intuitive judgments or choices, despite the fact that the real value of money is the same.
A prototypical situation in which the euro illusion is prevalent is a currency changeover,
such as the one that led 12 countries to adopt the euro in January 2002. In this case, the illusion
stems from the fact that the prolonged experience with the former currency affects judgments
and decisions involving prices expressed in the newly introduced currency. The euro illusion
may also exist in rather common situations, for instance when a consumer has to deal with
prices expressed in foreign currencies (e.g., during travel or on-line shopping). In such cases,
the consumers’ daily experience with their national currency may influence how prices in the
foreign currency are perceived and decisions are made (see e.g., Raghubir and Srivastava 2002).
Research on the Euro Illusion in Price Estimation
Estimating the price of a product is a fundamental task for consumers, because it is a
necessary step for being able to evaluate the selling price in relation to the market prices
The Euro Illusion in Consumers’ Price Estimation
339
and make sensible purchase decisions (Kopalle et al. 1996; Niedrich et al. 2001; Ranyard
et al. 2001). An anchoring mechanism is thought to be responsible for the euro illusion in
price estimation (Jonas et al. 2002). Different processes – such as scale compression or
difference assessment – are also involved in price evaluation and choice (cf. Marques 1999;
Soman et al. 2002).
In the case of price estimation in a newly introduced and unfamiliar currency, the
anchors are represented by memorized reference prices in the old familiar currency. These
anchors can be plausible or implausible (Mussweiler and Strack 2001). An anchor is
plausible if its nominal value lies within the range of possible prices of the products,
otherwise it is implausible. In general, the steeper the exchange rate between the old and the
new currency, the less plausible the anchor is. For instance, in Italy the euro prices for a litre
of orange juice ranged approximately from 0.90 to 2.5. Thus, a reference price of 2,500 lire
(corresponding to 1.29 euro) is a completely implausible anchor, since it is very far from
the range of possible euro prices. On the other hand, a reference price of 1.22 punt
(corresponding to 1.55 euro) is a completely plausible anchor for the Irish consumers,
because the price of the orange juice ranges approximately from 1.2 to 1.9.
Studies of price estimation show that consumers’ estimates are affected by the currency in
which the judgment is required. Consumers usually provide higher estimates when the
nominal values of the unfamiliar newly introduced currency are smaller than the corresponding
values of the familiar former currency. The asymmetry in estimation reverses when the
nominal values of the unfamiliar currency are greater than the familiar currency. Furthermore,
when a familiar currency is compared with a less familiar currency, the initial asymmetry in
estimation decreases as experience with the less familiar currency increases. The evidence for
this has been obtained using two methods: (a) direct estimation tasks similar to the ones used
to appraise the reference price of a product, and (b) anchoring paradigms.
Raghubir and Srivastava (2002) asked groups of US participants what they would be
willing to pay for goods in either US dollars or unfamiliar currencies with exchange rates
either about four or about 0.25 units to the dollar. When the unfamiliar currency had a
higher nominal value than the familiar currency, participants’ willingness to pay for the
products decreased. Conversely, when the unfamiliar currency had a lower nominal value
than the familiar currency, willingness to pay increased. Jonas et al. (2002) asked German
participants to estimate prices of the same goods in either German mark (DM) or euro
(1 euro=1.96 DM) before the introduction of the euro. The participants reported higher prices
when they were asked to provide judgments in euro. Control analyses and experiments
showed that these results were not due to a self-imposed time frame or to negative attitudes
towards the euro. Beyond demonstrating the transient influence of plausible anchors (in DM)
on euro estimates, these researchers raised the problem of the role of implausible anchors
(e.g., the Italian lira), suggesting that implausible anchors should not influence estimation.
Mussweiler and Englich (2003) used a basic anchoring paradigm to investigate the
extent to which price estimates were influenced by external anchor prices presented before
estimation. Between winter 2001 and summer 2002, the effect of anchors on German
participants’ estimates in euro versus German mark changed. Before the introduction of the
euro, the effect of euro anchors on euro estimates was much greater than after. Conversely,
the effect of DM anchors on estimates in DM was much greater after the changeover than
before. These changes in anchoring effects reflect adaptation to the new currency by
university students in the first 6 months after the introduction of the euro. Two other studies
also reported evidence of adaptation. Marques and Dehaene (2004), analyzing the Weber
fractions obtained from price estimates collected between November 2001 and June 2002,
showed that price estimates became progressively more accurate in Austria and in Portugal,
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but adaptation progressed slowly and it was still partial in June 2002. Moreover, a significant
difference in the rate of adaptation between the two countries was observed, with adaptation
being slower in Portugal. In their price estimation study, Amado et al. (2007) showed that
Turkish consumer were already well adapted to the New Turkish lira after 6 months of the
changeover from the old Turkish lira. The changeover consisted of dropping six zeroes from
the nominal value of the old currency. Amado et al. (2007) attributed this fast adaptation to
an efficient rescaling process (cf. Marques and Dehaene 2004).
The reviewed studies suggest two significant research directions. First, while the influence
of plausible anchors on price estimation has been convincingly demonstrated, the role of
implausible anchors is still not clear. Actually, in a study on the evaluation of fictitious
currencies, Gamble et al. (2002) found an effect opposite to the euro illusion when the exchange
rate was extreme. Given the similarity of this condition to the Italian lira to euro transition, the
effect was called the lira illusion. Thus, it is far from obvious that a strong euro illusion in price
estimation would be obtained in a sample of Italian consumers. The theoretical and applied
relevance of the potential effect of implausible anchors motivated the present study.
Second, the rate of adaptation to a new currency (as measured by price estimation)
appears to vary markedly from country to country and seems to depend on the need to
relearn (vs rescale) product prices and on the specific exchange rate between the familiar
and the unfamiliar currency. However, the available empirical evidence is rather sparse and
it allows only a partial understanding of the variables and mechanisms that promote or
hinder adaptation. Therefore, additional cross-country studies are called for to assess the
persistence of currency-related illusions after the changeover, given that these illusions are
an important sign of incomplete adaptation. At the same time, such studies should help
identifying the variables that promote or hinder adaptation and explain their influence by
referring to general theories of currency cognition. These were additional reasons that
motivated the present study.
It is important to note at least one boundary condition of the euro illusion. Marked
asymmetries in price estimation are likely to be observed only when consumers rely on
intuitive processes and do not perform explicit conversions of values between the
unfamiliar and familiar currencies (Lemaire 2007; Lemaire and Lecacheur 2001; Lemaire
et al. 2001). When explicit conversion strategies are applied, systematic errors are usually
less pronounced, and they depend mainly on the rounding and approximation biases
associated with the specific conversion strategy. It seems that conversion strategies are
carried out particularly when the consumers’ experience with the currency is limited, the
conversion is easy to perform, or high stakes (e.g., high prices) motivate the consumers to
be accurate (Gamble 2007; Gamble et al. 2002). The frequency of adoption of conversion
strategies seems also to be inversely related to the degree of adaptation to the novel
currency: Consistent with the Eurobarometer surveys (European Commission 2002, 2003,
2004), Irish respondents reported significant decreases in their use of explicit mental
conversion of euro prices to punts during the first year of the euro (Ranyard et al. in press).
Explanations of the Euro Illusion in Price Estimation
Different accounts of the euro illusion have been proposed for different tasks, because the
underlying decision processes apear to be dissimilar. Here the focus is only on the
explanations of the euro illusion in price estimation. These explanations will be applied to
the specific context of a national currency change, a situation that characterizes the
empirical study carried out.
The Euro Illusion in Consumers’ Price Estimation
341
All of the existing accounts of the euro illusion in price estimation refer to memory
retrieval processes and to the notion of a reference price (e.g., Kopalle et al. 1996; Niedrich
et al. 2001; Ranyard et al. 2001) defined as a stored typical price of a given product. The
basic assumption of these accounts is that, in order to provide an estimate for the price of a
product, consumers rely on the retrieval of prices stored in memory. When consumers are
asked to estimate a price and the task is performed in a currency that is familiar (their home
currency), they will simply report a retrieved reference price. However, if a currency change
has recently taken place, and the prices in the old currency are still sufficiently active in the
consumer’s memory, these old reference prices will be automatically retrieved so that they
influence the estimation in the new currency. The specific view of how this influence occurs
characterizes the different accounts of the euro illusion in price estimation. Still, in all these
views, price estimation is conceived of as an anchoring and adjustment process.
In particular, it is possible to distinguish between two classes of explanations of the euro
illusion in price estimation: the plausible anchoring account and the implausible anchoring
account (Jonas et al. 2002; Mussweiler and Strack 2001). The plausible anchoring account
comprises two rival explanations. The first assumes a pure numeric process, with no semantic
mediation (Jonas et al. 2002). Starting from the description of the product, consumers
generate an initial price estimate in the euro currency. Then, due to the sharp difference
between this numeric value and the reference price in the old currency, they adjust their
estimates towards the old price, because the initial estimate appears too small. This process,
based on a contrast effect, is actually the reverse of typical anchoring, which assumes that
the anchor (not the estimate) is adjusted. According to the second explanation of plausible
anchoring (Mussweiler and Strack 1999), the description of the product leads participants to
retrieve an anchor value (reference price in the old currency). Then, the value of the anchor
triggers selective accessibility of specific product information (e.g., if the anchor is a cheap
price, the participant will focus on features justifying a low price). This information
eventually affects the final price estimate in euro.
A different mechanism has been proposed to explain the euro illusion in the case of
implausible anchors (Mussweiler and Strack 2000, 2001). As in the case of plausible
anchors, this explanation assumes that, after the retrieval of an anchor value (reference price
in the old currency), the selective accessibility of specific product information mediates the
effect of the anchor on the final price estimates. However, in this case, the implausible
anchors are first adjusted to the extreme value of the range of plausible prices in the euro
currency. Then, the final estimate is affected by selective accessibility. In this case, the
asymmetry in price estimation should be boosted, because the anchors are initially
assimilated to the highest reference price in the euro currency. A much simpler explanation
can be advanced, generalizing the purely numeric estimation process proposed by Jonas
et al. (2002) for plausible anchors. An initial price estimate in euro may simply be adjusted
towards the retrieved reference price in the old currency. The adjustment will be greater
than the one applied in the case of plausible anchors, due to the larger difference between
the initial estimate and the reference price in the old currency.
According to Jonas et al. (2002), the euro illusion should occur only when stored prices
in the old currency represent plausible values. Thus, the euro illusion should not affect
consumers when the exchange rate with the former currency is too steep, because in these
conditions (akin to the Italian euro transition), the consumers are expected to disregard the
reference prices in the old currency. Conversely, when the exchange rate brings out the old
prices as plausible values, consumers should be affected by the euro illusion (e.g., the
German and the Irish euro transitions). According to the implausible anchoring
explanations, the euro illusion should instead be stronger when the prices in the old
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currency represent implausible values. Finally, all the existing explanations of the euro
illusion in price estimation predict that the illusion should progressively weaken as the
reference prices in the new currency become more and more active and the activation of the
reference prices in the old currency decays.
While the influence of plausible anchors on price estimation has been convincingly
demonstrated (e.g., Jonas et al. 2002; Mussweiler and Englich 2003), the role of
implausible anchors in price estimation is still unclear. As we have noted, a study found
a reversal of the euro illusion (the lira illusion) in a price evaluation task with fictitious
currencies when the exchange rate was extremely steep (Gamble et al. 2002).
Moreover, it is not known for how long the old reference prices remain active in the
consumers’ long-term memory after a currency changeover before their influence is no
longer effective. This probably depends on various factors, including the frequency of
mental conversions of the new prices into the old currency and how often the consumers
resort to the old currency when they reason about prices. The Eurobarometer surveys
indicate that the majority of Italian consumers continued to count mentally in lira (or both
in euro and lira) in the third year after the introduction of the euro, while this was not true
for the Irish or German consumers (European Commission 2004). As explained in the
results section, although triggered by the need to cope with the unfamiliar currency and
make sense of it, the conversion processes may actually update and strengthen the old
anchors. Therefore, in some countries the old anchors may have a very long life and the
euro illusion in price estimation will remain for a very long time after the changeover.
A Cross-country Study of the Euro Illusion in Price Estimation
A cross-country study of price estimation in Italy and Ireland was conducted. These countries
were selected because they exhibit the greatest difference in the exchange rates with the euro
(1 euro=1,936.27 lira; 1 euro=0.787564 punt). While lira prices represent implausible
anchors for Italian people, punt prices are plausible anchors for Irish consumers.
The aims of the study were twofold. First, as suggested by Jonas et al. (2002), one aim
was to test the two different classes of accounts of the euro illusion (related to plausible vs
implausible anchors). A second aim was to assess the prevalence of the euro illusion in
price estimations in the third year after the euro changeover by comparing two countries in
which the rate of adaptation has presumably been very different. As previously pointed out,
there are good reasons to think that the rate of the adaptation may differ from country to
country and that, in specific countries, the euro illusion remains long after the changeover.
It is believed that the euro illusion is not limited to plausible anchors, but that it should
be particularly large when the prices in the old currency represent implausible anchors. This
hypothesis is grounded in the consideration that implausible anchors may produce anchoring effects even stronger than those elicited by plausible anchors (Mussweiler and Strack
2001). Therefore, it is predicted that the account of the euro illusion that encompasses the
effect of implausible anchors will be supported. Thus, the main hypothesis for the price
estimation in the Italian sample is:
H1: Italian Euro Illusion. The Italian participants will estimate higher prices when asked
to report the values in euro (vs lira)
The absence of a currency-related difference in the price estimates is instead predicted
from the plausible anchoring account, because the implausible anchors should be disregarded. The same result can be obtained also in case of a full adaptation to the euro currency.
The Euro Illusion in Consumers’ Price Estimation
343
Assuming that the size of the euro illusion is related to the steepness of the exchange rate
(when consumers relearn prices), in the Irish sample a much smaller effect of the currency
on price estimates is expected. Given that the nominal value in Irish punt is smaller than the
corresponding nominal value in euro, the direction of the euro illusion in Ireland should be
opposite to the direction of the euro illusion in Italy. On the other hand, the Eurobarometer
surveys showed that the adaptation process in Ireland appeared to be much faster than in
Italy, suggesting the possibility that the euro illusion is found in Italy but not in Ireland.
Assuming that self-report measures of adaptation may not fully reflect behavioral adaptation,
the following hypothesis is posited for the Irish sample:
H2: Irish Euro Illusion. When the Irish participants make intuitive price estimates, they
will provide slightly lower prices when asked to report the values in euro (vs punt).
This hypothesis can be contrasted with a more cautious no difference prediction, which
assumes that the price estimates will not be different, regardless of the currency in which
the Irish participants are asked to report them (euro vs punt).
Finally, for the reasons previously stated (nature of the anchors in the old currencies and
rate of adaptation), a greater estimation asymmetry is expected in Italy than in Ireland
(regardless of the direction of the asymmetry):
H3: Asymmetric Size. The asymmetry in price estimation (in absolute terms) will be
greater in the Italian sample than in the Irish sample.
Putting together the three hypotheses, asymmetries in opposite directions are expected in
Italy (H1) and Ireland (H2) with the size of the Italian asymmetry greater than the size of
the Irish asymmetry (H3). A joint test of the Italian (H1) and the Irish (H2) euro illusion
hypotheses through a cross-country analysis can be considered as successful if a significant
interaction is found between the country and the currency in which the judgments are made
(euro vs old national currency – lira or punt). Additional analyses on the size of the
asymmetry will test hypothesis H3.
Method
The study was carried out in Italy and Ireland between September and December 2004, and
was completed before the beginning of the Christmas period. Consumers were recruited at
points of sale of two chains of supermarkets and requested to fill out a questionnaire before
starting their shopping. In each country samples of 96 respondents of different age and
gender (within the age range of 18 and 80 years old) were obtained. The Italian sample was
composed of 34% men and 66% women. The age distribution was as follows: 41% between
18–35, 30% between 36–50, and 29% between 51–79. The Irish sample consisted of 37%
men and 63% women, with the following age distribution: 34% between 18–35, 33%
between 36–50, and 33% between 51–79.
In the questionnaire, participants were asked to specify the typical prices of a set of
unbranded products, using a procedure very similar to that adopted in previous price
estimation studies (Jonas et al. 2002; Marques and Dehaene 2004). The data collectors
made clear to the participants that they should report the current prices of the products, even
when they made estimates in the old currency.
A 2×2 quasi-experimental between-groups design was used. The currency in which the
judgments were made varied according to two conditions (euro vs old national currency – lira
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or punt), and country was a two-level quasi-experimental factor (Italy vs Ireland). Therefore,
two versions of the same questionnaire were prepared, each with a different currency format
(euro or old currency). The participants were randomly assigned to one of the two currency
formats. Each one of the four groups consisted of 48 participants.
Descriptions of items belonging to four different product classes (three products for
each class) were presented. The product classes were defined by combining price level with
frequency of purchase. The price level of the product was taken into account because the
euro illusion may selectively affect different price ranges. Consumers may be more willing
to use conversion strategies and try to be more accurate for high prices (Gamble et al.
2002). The frequency of purchase is associated with the probability to encode and store in
memory the euro price of the product. According to some studies (Dehaene and Marques
2002; Marques 2007; Marques and Dehaene 2004), the frequency of purchase is positively
correlated with the adaptation to the euro.
The modal price of the products varied in three levels (less than 5 euro, between 30 and
150 euro, and over 200 euro), while the frequency of purchase (low vs high) was nested
within the lowest price level (less than 5 euro). Therefore, the participants were presented the
following four classes of products: (a) frequently bought items with a modal price lower than
5 euro, (b) infrequently bought items with a modal price lower than 5 euro, (c) infrequently
bought items with a modal price between 30 and 150 euro, and (d) infrequently bought items
with a modal price greater than 200 euro.
A short description of 12 generic products was prepared for all the items, not containing
any reference to specific brands1 (Appendix A). The description was general enough to
represent a class of products. However, in order to eliminate the variability of price
estimates due to insufficient information, it was less general than the mere class names used
in previous studies (e.g., Marques and Dehaene 2004). The majority of the products in Italy
and in Ireland had approximately the same price and the same frequency of purchase (i.e.,
orange juice, paprika, potatoes, drawing compass, office scissors, and DVD player). Other
products were also similar with regard to the frequency of purchase but their prices were
more variable across countries (i.e., compact car, hotel room, flight to the US, dental polishing, wardrobe, and pasta). An additional country-specific familiar product (rice for Italy
and tea for Ireland) was used as an initial example. Two different orders of presentation of
the products were used for each version of the questionnaire.
Backtranslation was applied to make sure that the Italian and the Irish versions of the
questionnaire were equivalent. The questionnaire was composed of the following parts: (a)
introduction; (b) instructions; (c) price estimation task for the 12 products; (d) three questions
taken from the Eurobarometer survey and an additional question on the usage of currency
conversion strategies; (e) a series of questions about the consumer’s attitude towards the euro
and the European Union (adapted from Lambkin 2001); (f) a question about perceived price
changes since the introduction of the euro; and (g) socio-demographic questions. The
questions about currency conversion and adaptation, Eurobarometer questions, and attituderelated questions are shown in Appendix B.
1
The prices and the frequency of purchase of the products and their range of variation were checked using a
number of sources, for the prices the following: (a) the stores where the data collection was to be carried out;
(b) the web sites of the main national supermarket chains (e.g., the e-coop web site in Italy – www.e-coop.it –
and the Tesco web site in Ireland – www.tesco.ie ); (c) web sites that present a great number of products with
different price ranges (e.g., amazon.com, bizrate.com) or national web services (shopbots) that are
specifically devoted to price comparisons (e.g., trovaprezzi.it); and for the frequencies of purchase the
following: (a) the information provided by the national statistical agencies www.istat.it, www.cso.ie ), and
in particular surveys on the shopping habits of consumers; (b) previous studies on adaptation to the Euro.
The Euro Illusion in Consumers’ Price Estimation
345
The instructions contained a general description of the research followed by a concrete
example of how to fill out the questionnaire. Then, for each of the products, the participants
read its description, wrote down the typical price, and rated how frequently they buy this
kind of item. Depending on the experimental condition, the instructions asked for price
estimates in euro or in lira/punt. Furthermore, the name of the currency was printed at the
right of the blank spaces in which the participants were asked to write their estimates.
The data collection was conducted at the points of sale of two shopping chains (Tesco
stores in Ireland and Supermercati Smile in Italy), in Dublin, Ireland and Jesolo (a city near
Venice), Italy. At both points of sale, participants were recruited immediately after entrance,
where a quiet and comfortable space was available. In both the countries participants received
incentives for their cooperation. Both in Italy and in Ireland, the data collectors worked
according to a pre-specified collection schedule, which specified how the administration of
different versions of the questionnaire should be interleaved, in order to avoid potential
sampling biases associated with the day and time.
Results
Manipulation Checks
The self-reported frequencies of purchase of the products were analyzed.2 Both in Italy and
Ireland a higher frequency of purchase was reported for the items considered as bought with
a medium-high frequency (orange juice, potatoes, and pasta). The modal reported frequency
of purchase for each of these items was ”more than once a month” (“once a month” for
pasta in the Irish sample). The participants reported instead lower frequencies of purchase
for the products considered as less frequently bought (scissors, hotel, wardrobe, car, dvd
player, flight, compass, and dentist). In these cases, the modal reported frequency of
purchase was ”1–2 times in the last 5 years” or ”never in the last 5 years”. Dependentsamples t tests yielded significant differences in the frequency of purchase between these
two groups of products both for the Italian (t (95)=37.41, p<0.001) and the Irish sample
(t (93)=23.19, p<0.001).
A second manipulation check consisted of verifying whether the participants were aware
of the price differences between the three classes of products (price less than 5 euro, between
30 euro and 150 euro, more than 200 euro). The mean price estimates were compared for each
class of products with dependent-samples t tests. The expected differences were found in
both the Italian sample (5 vs 30–150 euro: t (95)=−30.51, p<0.001; 30–150 vs more than
200 euro: t (95)=−24.58, p<0.001) and in the Irish sample (5 vs 30–150 euro: t (92)=−26.76,
p<0.0001; 30–150 vs more than 200 euro: t (92)=−24.33, p<0.001).
Price Estimates
The price estimates were converted from the old national currency to euro, using the official
exchange rates. Having found no difference related to the order of presentation of the
products, the results were pooled across the two different orders.
Initial tests were made of the euro illusion hypotheses (H1 and H2) via four 2×2 crosscountry multivariate analyses of variance (MANOVAs), one for each of the product classes.
2
All the data analyses were performed after the removal of outliers and extreme data points on a variableby-variable basis.
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The independent variables were the currency in which the judgments were made (Euro, old
national currency – lira or punt), and the country (Italy, Ireland). For each MANOVA,
dependent variables were the price estimates for each of the three items belonging to the
target product class. A class-by-class analysis was performed because the variance of the
estimates was heterogeneous across product classes. The cross-country MANOVAs showed
a significant interaction between country and currency for the two product classes
frequently bought items with a low price (Wilks’ Lambda=0.93, F(3, 161)=3.75, p<0.05)
and infrequently bought items with a medium price (Wilks’ Lambda=0.92, F(3, 137)=4.19,
p<0.01). Moreover, the country by currency interaction for the class of infrequently bought
items with a low price was marginally significant (Wilks’ Lambda=0.95, F(3, 153)=2.43,
p=0.07). The interaction for the class of infrequently bought items with a high price was
not significant. As will be shown in country-specific tests, the significant interactions
substantiated opposite trends for the Italian vs Irish data, in the directions predicted by the
euro illusion hypotheses (H1 and H2).
To assess the significance of the main effect of the currency without confounding the two
opposite asymmetries, country-specific one-way MANOVAs were performed on product
classes and t tests with separate variance estimates for single products. The independent
variable was the currency in which the estimates were made. In the Italian sample, the
MANOVAs showed a significant effect of the currency for frequently bought items with a
low price (Wilks’ Lambda=0.75, F(3, 86)=9.44, p<0.0001), infrequently bought items with
a low price (Wilks’ Lambda=0.84, F(3, 80)=4.98, p<0.01) and infrequently bought items
with a medium price (Wilks’ Lambda=0.77, F(3, 65)=6.58, p<0.001). The differences
between the means of the two currency conditions supported the Italian euro illusion
hypothesis (H1), as confirmed by t tests for eight (out of nine) products (Table 1). The
effect of the currency was only marginally significant for infrequently bought items with a
high price (Wilks’ Lambda=0.90, F(3, 70)=2.44, p=0.07). However, for these three
products, t tests did not yield significant differences and the trend of the asymmetry was in
the direction opposite to H1 (Table 1).
Summarizing, the euro illusion hypothesis for the Italian sample was supported both by
the aggregate analyses (three out of four cross-country and country-specific MANOVAs)
and by the country-specific product-by-product comparisons (8 products out of 12). The
Table 1 Means and standard deviations of the price estimates in the lira condition (converted in €) and the
euro condition, significance of the t tests with separate variance estimates (one-sided), and percentage
difference in estimation
Product
M lira
SD lira
M euro
SD euro
p
% Difference in estimation
Hotel
Orange juice
Office scissors
Wardrobe
Potatoes
Compact car
Dvd player
Paprika
Pasta
Flight
Compass
Dentist
45.32
1.15
3.16
402.71
1.04
9613.92
105.92
1.00
0.66
677.33
3.41
69.80
14.31
0.42
1.94
187.52
0.60
1517.44
40.21
0.54
0.25
271.68
2.07
29.13
61.96
1.54
3.62
367.41
1.57
9171.32
121.44
1.31
0.82
628.96
5.79
85.12
22.06
0.39
1.81
232.48
0.81
1647.59
45.57
0.47
0.34
302.72
4.12
35.09
p<0.0001
p<0.0001
p=0.13
p=0.23
p<0.0001
p=0.10
p=0.05
p<0.01
p<0.01
p=0.20
p<0.001
p<0.001
+37%
+34%
+15%
−9%
+51%
−5%
+15%
+31%
+24%
−7%
+70%
+22%
The Euro Illusion in Consumers’ Price Estimation
347
Italian participants provided significantly higher estimates when they were asked to report
the prices in euro, and this trend involved both frequently and infrequently bought products.
Moreover, the magnitude of these effects was large in that the percentage difference in
estimation ranged from +15 to +70%. It is interesting to note that the euro illusion
hypothesis was supported also for a product (the dvd player) that actually underwent a
significant price reduction since the introduction of the euro (−5.5%). Thus, it is concluded
that the Italian results are largely in agreement with the euro illusion hypothesis.
On the other hand, the estimation asymmetry was not observed for each of the three
high-priced products. A similar result was obtained by Gamble et al. (2002) and it may be
due to the fact that, for those products only, the participants did not make an intuitive
judgment but instead adopted an explicit conversion strategy. This potential explanation is
also supported by the observation that the reversal of the price estimation asymmetry in the
high priced products appears generally compatible with the rounding and approximation
biases associated with the most popular lira–euro conversion strategy (divide the lira price
by 2000).
In the Irish sample, country-specific one-way MANOVAs for product classes showed a
significant currency effect only for the class of infrequently bought items with a medium
price (Wilks’ Lambda=0.88, F(3, 70)=3.15, p<0.05). The results of t tests conducted for
the Irish sample (see Table 2) highlighted a difference in the direction predicted by the Irish
euro illusion hypothesis (H2) for two products only. The differences between the means of
all the products showed a general trend in the expected direction, but its magnitude was
rather small (−8%).
Due to the relatively low observed statistical power of the nonsignificant tests (ranging
from 0.07 to 0.30 for α=0.05 in one-way MANOVAs), it is difficult to decide whether the
euro illusion hypothesis for the Irish sample (H2) should be rejected. A more prudential
conclusion is that it was possible to detect the euro illusion for one class of products
only.
In order to provide further evidence for a difference in estimation asymmetry between
the Italian and the Irish sample, the percentage of estimation asymmetry for each product
(see Tables 1 and 2, last column) was compared by performing a dependent-samples t test
and maintaining the sign of the asymmetry. The test confirmed the existence of a strong
Table 2 Means and standard deviations of the price estimates in the punt condition (converted in €) and the
euro condition, significance of the t tests with separate variance estimates (one-sided), and percentage
difference in estimation
Product
M punt
SD punt
M euro
SD euro
p
% Difference in estimation
Hotel
Orange juice
Office scissors
Wardrobe
Potatoes
Compact car
Dvd player
Paprika
Pasta
Flight
Compass
Dentist
95.09
1.62
3.78
344.17
2.62
13331.93
195.74
1.91
1.35
444.56
2.35
56.51
33.23
0.64
1.90
148.14
1.16
3278.98
106.30
0.68
0.63
168.28
1.33
25.62
91.99
1.50
3.44
288.02
2.55
12612.50
154.00
1.89
1.29
445.15
2.60
62.59
31.29
0.61
1.75
126.14
1.08
3151.33
78.54
0.82
0.61
146.55
1.20
20.32
p=0.33
p=0.17
p=0.18
p<0.05
p=0.39
p=0.15
p<0.05
p=0.45
p=0.34
p=0.49
p=0.17
p=0.12
−3%
−7%
−9%
−16%
−3%
−5%
−21%
−1%
−4%
0%
−11%
−11%
348
F. Del Missier, et al.
difference between the two countries (t (11)=4.46, p<0.001; M=31%). This result can be
attributed to differences in both the size of the asymmetry and its direction. The Asymmetry
Size hypothesis (H3) was finally tested by taking the absolute value of the percentage of
estimation asymmetry as the dependent variable. A dependent-samples t test supported the
hypothesis that the absolute size of the asymmetry was significantly greater in the Italian
sample than in the Irish sample (t (11)=3.14, p<0.01; Italy: M=27%, Ireland: M=8%).
Control and Integrative Analyses
Two plausible alternative explanations for the euro illusion observed in the Italian sample
are considered. The first is that participants provided lower price estimates in the lira
condition because they relied on obsolete lira reference prices. Because of price increases,
these old lira prices should have been lower than euro prices at the time the price estimates
were obtained, and this could explain the observed currency-related biases. If this were the
case, the estimation biases would be related to the inflation rates of the products, because
prices that increased more should be more underestimated in the lira condition.
This alternative hypothesis was tested by correlating the percentage of estimation bias
with the percentage increase of the product prices. The official inflation data provided by
the national Italian statistical institute (ISTAT, www.istat.it) were used for classes of
products analogous to the ones employed in the study. The correlation was negative and not
significantly different from zero (r=−0.27, p=0.39). Thus, it is concluded that the euro
illusion observed in the Italian sample cannot be attributed to reliance on obsolete reference
prices in lira. The official inflation statistics in Ireland (www.cso.ie) and Italy were also
compared on a year-by-year basis, in order to exclude that the differences in price
estimation between the two currencies are explained by referring to national differences in
inflation (mediated by the reliance on obsolete references prices). If this were the case, the
inflation rate should be much greater in Italy than in Ireland. Moreover, one should observe
a decrease of inflation in Ireland. Actually, in the target period, the overall inflation rate in
Ireland was always greater than the corresponding inflation rate in Italy (Ireland: 2002=
+4.6%; 2003=+3.5%; 2004=+2.2%; Italy: 2002=+2.5%; 2003=+2.6%; 2004=+2.1%).
These data lead to refutation of the alternative explanation grounded in the role of obsolete
reference prices.
The estimation biases observed in the Italian sample may alternatively be due to a
general positive attitude towards the euro or the European Union (EU). This positive
attitude could have led participants to provide higher prices in the euro condition. Previous
research has found that attitudes, expectations, and mood may affect the euro illusion in this
way (e.g., Gamble 2007; Gamble et al. 2002; Przybyszewski and Tyszka 2007). If an
attitude-based explanation holds, one should find that participants in the Italian sample had
positive attitudes towards the euro or the EU. More importantly, one should find that these
positive attitudes would be significantly more pronounced in the Italian than in the Irish
sample, and that they would be related to the price estimates.
The self-report attitude data measured on 5-point scales were used to test this second
alternative hypothesis. At the time of the study, both the Italian and the Irish participants
expressed positive attitudes towards the euro (Italy: M=3.94; Ireland: M=3.66) and the EU
(Italy: M=3.98; Ireland: M=3.70) with no significant differences between the two countries
(t (90)=1.21, p=0.23; t (86)=1.50, p=0.14). Moreover, no significant correlations were
found between the attitudes of Italian and Irish participants and the extremeness of their
euro price estimates (computed by taking the mean of the standardized estimates over the
The Euro Illusion in Consumers’ Price Estimation
349
12 products). These results show that the Italian and Irish participants had rather similar
attitudes that were unrelated to their euro price estimates, thus ruling out the alternative
explanation.
Finally, a series of analyses of the self-reported frequency of conversion provided
additional insights that were helpful in interpreting the results. First, a significant difference
was observed in the percentage of participants who stated that they continued to ”count
mentally” in the old currency (or in both the old and the euro currency). For common
purchases, the difference was 71% (Italy) vs 9% (Ireland), while for exceptional purchase
the difference was 85% (Italy) vs 20% (Ireland). Both of these differences were statistically
significant (p<0.001) and consistent with the results of the Eurobarometer survey
conducted at the same time (European Commission 2004). Second, a difference was
observed in the percentage of participants who reported continuing to convert euro prices to
the old currency. The percentage of Italian consumers who reported converting always or
often was 76%, while the corresponding Irish percentage was 12% (p<0.001).
First, it seems that, according to the self-reports, the Irish consumers were definitely better
adapted than the Italian consumers at the time of the study. This strengthens the conclusion
coming from the price estimation task and agrees with the results of the Eurobarometer
surveys. Second, these analyses suggest one possible reason why the Italian participants may
have relied on updated lira reference prices in the lira condition: Lira prices were probably
updated and kept active because of frequent mental conversions. On the other hand, these
results suggest that the reference prices in punt may have been obsolete, which perhaps
boosted the weak euro illusion observed in Ireland. Third, the existence of a loop mechanism
that potentially feed the euro illusion in price estimation may be hypothesized. If the peculiar
exchange rate makes the adaptation to a novel currency particularly difficult, when consumers
have to evaluate a presented price they will rely more often on analytic conversion strategies
in order to make sense of the price, especially when mental conversion is easy to perform.
This will lead them to update reference prices in the old currency and to keep the reference
prices active in long-term memory. When participants rely on intuitive judgments for euro
price estimation (i.e., not using deliberate conversion strategies), these reference prices in the
old currency will be active and are more likely to act as anchors.
Discussion
Theoretical Implications
The results of the cross-country price estimation study showed that the euro illusion existed
in the Italian sample in the third year after the changeover. A strong asymmetry in price
estimation was observed for two-thirds of the products tested. However, the evidence for
the euro illusion was weaker in Ireland. A general trend in the expected direction was
found, but statistical tests yielded significant differences only for two products. Moreover,
the average size of the asymmetry was significantly greater in the Italian sample.
The first implication of these findings concerns the theories of the euro illusion in price
estimation. The Italian results are not compatible with models assuming the sole influence
of plausible anchors; models of anchoring and adjustment also assuming the influence of
implausible anchors appear to better explain the euro illusion in price estimation. The effect
size of the euro illusion in Italy implies in fact that the influence of implausible anchors may
be very strong. Future studies in different contexts should corroborate this conclusion,
350
F. Del Missier, et al.
investigate its boundary conditions, and compare alternative models of anchoring in price
estimation tasks. A related implication originates from the observation that the Italian
results are inconsistent with the lira effect (Gamble et al. 2002). A potential explanation is
that the recoding mechanism posited to account for the lira effect may only apply when
people do not routinely deal with large numbers of digits (like the Swedish participants in
the Gamble’s et al. study and unlike the Italian participants).
Another significant conclusion is that the euro illusion in price estimation may last long.
The euro illusion was in fact observed more than 2 years after the euro changeover. On the
basis of existing studies and these results, one may speculate about the factors that hinder
the adaptation to a novel currency by promoting the persistence of this currency-related
illusion. As a previous study showed (Amado et al. 2007), the steepness of the exchange
rate per se is not a perfect predictor of adaptation. Adaptation is easy when the exchange
rate allows the consumers to rescale the prices (i.e., the consumers do not have to relearn the
prices), even if the nominal value of the money is radically changed after the changeover. A
possibility regarding relearning, supported by laboratory experiments (Juliusson et al. 2005),
is that the exchange rate affects the consumers’ ability to learn to make sense of prices (i.e.
develop a value function for the unfamiliar currency). When consumers have difficulties,
they may resort to conversion strategies (if these are relatively effortless), updating and
re-activating the reference prices in the old currency. This may make them more prone to
anchoring biases in intuitive price estimation, particularly strongly when the reference
prices in the old currency represent implausible anchors.
The third theoretical implication is that attitudes do not appear to be a major determinant
of the euro illusion in price estimation. Obviously, this does not mean that attitudes do not
play a role in other currency- or price-related phenomena. From a methodological
viewpoint, it would therefore appear particularly worthwhile to collect also attitude-related
data in studies on price perception and currency cognition (cf. Gamble et al. 2002;
Przybyszewski and Tyszka 2007). From a theoretical viewpoint, it would be wise to set the
goal of developing and testing integrated models in which the complex inter-relations
between attitudes and ”cold” cognitive process is made explicit.
Implications for Consumer Policy and Consumer Support
The present results have significant implications for consumer policy and support, given that,
at least in some countries, the euro illusion in price estimation appears to be a very long-lived
phenomenon. The euro illusion can be one of the causes that make the appraisal of the real
value of money very difficult, leading to a failure to notice significant price increases, and
promoting annoyance. Consumers may thus suffer personal negative consequences and, in
the long run, also develop unfavorable attitudes towards the novel currency and the public
institutions responsible for currency changes. This attitude change recently took place
(European Commission 2005) and the euro issue entered as a core argument into the public
debate, associated with a partially unjustified perception of strong price rises that may be
partly related to the euro illusion (cf. Del Giovane et al. 2005; Traut-Mattausch et al. 2007;
Van Raaij and Van Rijen 2003).
Therefore, it appears particularly important to implement effective public policies to
foster the process of adaptation after a currency changeover. These policies can be very
helpful in the case of countries that are going to join the euro in the coming years,
especially when the exchange rate is steep and there are reasons to believe that consumers
The Euro Illusion in Consumers’ Price Estimation
351
will have difficulties in making sense of novel prices (because a fast rescaling process will
not take place).
Information campaigns should start well before the changeover, be very pervasive, and
terminate only when surveys show that the adaptation process is complete. On the other
hand, the actual effectiveness of information campaigns and of dual pricing displays should
be tested in the laboratory before applying them. This evaluation should encompass their
short-term and long-term effects and consider different judgment modes (intuitive vs
analytical). Moreover, novel support instruments, not relying on the conversion to the old
currency, should be devised and tested. For instance, consumers could be taught the
correspondence between the prices in the new currency and the quantity of products that
typically have been bought at these prices (Juliusson et al. 2005). This should be done well
before the changeover. On the other hand, a well-organized policy of price control should
repress unjustified price increases that may take advantage of the consumers’ cognitive
insensitivity towards price increases (Del Giovane et al. 2005).
On-line consumers and tourists dealing with foreign currencies should also be supported,
because they may become victims of the euro illusion. These consumers will usually require
support for a short period only, not really needing to adapt to the unfamiliar currency.
Information campaigns aimed at making on-line consumers and tourists more aware of the
consequences of the euro illusion may be helpful. E-commerce web sites should provide
interactive tools allowing the automatic conversion of prices in different currencies. Finally,
the use of Personal Digital Assistants, cell phones, or any other electronic device performing
instant effortless currency conversion should be encouraged, as should the development of
shopping technologies that allow the personalization of price display (e.g., personal shopping
assistants).
Acknowledgements This research was funded by Consiglio Nazionale delle Ricerche through a grant
awarded to Nicolao Bonini for the European project Adapting to the Euro: A cross-national comparison of
the evaluation of Euro price changes (European Research Collaborative Program on the Social Sciences).
Thanks are due to Mary Lambkin and Laurent Muzellec (University College Dublin) for having supervised
and managed the Irish data collection, and to Sara Franzo for her help with the Italian data collection.
Appendix A: Descriptions of the Products Used in the Price Estimation Study
PRODUCT: 1 packet of 80 tea bags (250 gr/0.55 lb)
–1 litre (1.8 pints) of orange juice
–1 jar of paprika (34 gr/1.19 oz)
–1 kg (2.2 lb) of white potatoes (bag)
–1 drawing compass
–1 packet of pasta (spaghetti) 500 gr (1.1 lb)
–1 pair of office scissors: 16 cm (6 inches), stainless steel with blunt tips
–1 DVD player
–1 wardrobe with three doors
–1 dental polishing (private dentist)
–Compact car: New, 998 cm3 engine, three doors
–3 star hotel in a tourist beach destination: one night and breakfast in July
–1 ticket for a flight Dublin [Venice] – New York: no connections, roundtrip, economy
class, August
352
F. Del Missier, et al.
Appendix B: Questions About Currency Conversion, Eurobarometer Questions,
and Attitude-related Questions
Eurobarometer Questions
–Today, would you say that the euro continues to cause you a lot of difficulty, some
difficulty or no difficulty at all? (a lot of difficulty – some difficulty – no difficulty)
–Today, when purchasing, do you count mentally most often in euro, most often in punt
[lira], or as often in euro as in punt [lira] when it concerns exceptional purchases
such as the purchase of a car or a house for example? (most often in euro – most
often in punt [lira] – as often in euro as in punt [Lira])
–Today, when purchasing, do you count mentally most often in euro, most often in punt
[lira], or as often in euro as in punt [Lira] when it concerns common purchases such
as day to day shopping? (most often in euro – most often in punt [lira] – as often in
euro as in punt [lira])
Questions About Currency Conversion and Adaptation
–How often do you convert the price of a product in punt [lire] in order to understand
how expensive is it? (Never – Seldom – Sometimes – Frequently – Always)
–How difficult was your adaptation to the euro? (Very Difficult – Difficult – Not
difficult nor easy – Easy – Very easy – Don’t know)
Attitude-related Questions
–Think about the European Union. Generally speaking, do you think that Ireland’s
[Italy’s] membership of the European Union is ... (Very negative – Negative – Not
negative nor positive – Positive – Very Positive – Don’t know)
–Are you for or against the European Union having the euro as the single currency in
all member states, including Ireland [Italy]? (Very Unfavorable – Unfavorable – Not
unfavorable nor favorable – Favorable – Very Favorable – Don’t know)
–How important is the single European currency to you personally? (Very
Unimportant – Unimportant – Not unimportant nor important – Important – Very
Important – Don’t know)
–Do you believe that goods had become less or more expensive with the new currency?
(Much less expensive – Less expensive – Not less expensive nor more expensive –
More expensive – Much more expensive – Don’t know)
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