psychological effects of the euro?experimental research on the perception of salaries and price...

European Journal of Social Psychology

Eur. J. Soc. Psychol. 32, 147-169 (2002)

DOI: 10.1002/ejsp.112

Psychological effects of the Euro—experimentalresearch on the perception of salaries

and price estimations

EVA JONAS, TOBIAS GREITEMEYER,*DIETER FREY AND STEFAN SCHULZ-HARDTLudwig-Maximilians-Universitat, Munchen, Germany

Abstract

In five studies we show that the introduction of the Euro influences price estimations and the

perception of salaries among people in Germany. People confronted with wages given in Euros

compared to the German Mark (DM) showed a reduced willingness to face long distances to get to

work when accepting a job offer. When asked to price various consumer goods appropriately, they

estimated higher prices if they used the ‘Euro’ currency compared to price estimations made in DM.

This phenomenon only occurred with regard to the Euro, but not in comparison with other currencies

(cf. the British Pound and Austrian Schilling). The differing price estimations between the Euro and

the German Mark were not influenced by participants’ attitude towards the Euro. Moreover, it turned

out that they depended on how the judgement context was framed. Only if participants expected to

make price estimations for shops in their home country, Germany, did the familiar nominal DM

figures serve as an anchor heightening the estimated prices in Euro. The same effect disappeared

if participants were instructed to make their price estimations for shops in a foreign country

(Ireland). Copyright # 2002 John Wiley & Sons, Ltd.

Although the Euro has been an economic reality since 1999, from a psychological point of view the

actual introduction of the new notes and coins at the beginning of the year 2002 might be of more

importance for the citizens, because from that time on they are physically confronted with the Euro in

everyday life (Dehm & Muller-Peters, 2001; Pepermans, Burgoyne, & Muller-Peters, 1998). It is

unclear how people will react to the new currency. It might take a while until people get used to handle

and deal with the new Euros and Cents in everyday life, until employees get used to being paid in

Euros, and until customers are familiar with buying their goods and services using the Euro. Although

the real prices and objective amounts of money for employees and customers remain about the same, it

could make a significant psychological difference for people to be confronted with the new currency as

compared to their former national currency. In this article we will focus on two processes where such

psychological effects of the Euro could appear, namely the perception of salaries (with regard to their

attractiveness) and the estimation of prices.

Received 12 November 2001

Copyright # 2002 John Wiley & Sons, Ltd. Accepted 17 December 2001

*Correspondence to: Dr Tobias Greitemeyer, Institut fur Psychologie Sozialpsychologie, Ludwig-Maximilians-Universitat,D-80002 Munchen, Germany. E-mail: [email protected]

There are different aspects connected with the introduction of the Euro that could induce a

psychological difference between perceiving salaries and estimating prices in Euro versus in the

former national currency. On the one hand, the nominal values between the Euro and the former

national currency are different, and this nominal difference could influence the perception of prices,

salaries etc. On the other hand, not only does the nominal value change, but also the whole currency

system changes from a national system to one that operates throughout Europe. This loss of national

autonomy and the dependence on other European countries with regard to money issues could

influence the attitude towards the new currency, and this attitude, in turn, could have an impact on the

perception of salaries and the estimation of prices. How could each of the two changes affect the

perception of salaries and the estimation of prices?

The difference in nominal values could give rise to a phenomenon called the ‘money illusion’

(Fisher, 1928; Shafir, Diamond, & Tversky, 1997). Money illusion describes the tendency that people

often think of economic transactions in predominantly nominal terms, because the nominal value is a

salient and natural unit of money. Simply stated, they consider a product as being cheap if the nominal

value of the price is low, and they consider it as being expensive if the nominal value is high. However,

since people are usually aware that there is a difference between nominal and real values, their

evaluations often represent a combination of nominal and real assessments (Shafir et al., 1997). When

people convert their national currency to the Euro, then, depending on the exchange rate, the nominal

value of the Euro will be smaller or larger than the nominal value of the former national currency.

Therefore, prices in Euros may be perceived as higher or lower than prices in the familiar national

currency (Burgoyne, Routh, & Ellis, 1999). Marques (1999) has drawn attention to a related

phenomenon. Since for most member states (except for Ireland) the conversion to the Euro will

lead to prices with lower quantitative values, the quantitative differences between the prices will also

be significantly reduced. This makes it more difficult to compare the prices between different products

and services. It might take a while for the citizens to get used to the fact that quantitative smaller price

differences still mean a large increase in spending.

With regard to Germany, where our studies were conducted, from the year 2002 people will have to

handle unusually low figures when prices are given in Euros instead of German Marks since the

conversion rate is roughly 1 Euro to 2 DM. Thus, even if the real purchasing power of the money does

not change through the monetary reform, for example a salary of 50,000 Euros could be considered as

less attractive than the equivalent amount of about 100,000 DM simply because the nominal figures of

the first are smaller. Similarly, a CD player for about 200 Euros could be perceived as less expensive

than one sold for 400 DM simply because the figures of the first are lower.

In addition, another effect might occur as a result of the difference in nominal values. If people have

reference prices in mind, these reference prices can serve as an anchor in the price perception or price

estimation process (Shafir et al., 1997). Such anchors have systematic influence on subsequent judge-

ments in that, for example, higher anchors lead to higher price estimations (e.g. Northcraft & Neale,

1987). In general, anchoring effects are defined as ‘the assimilation of a judgement to a salient standard

of comparison’ (Mussweiler & Strack, 2000b, p. 1038). The anchoring effect was first described by

Tversky and Kahneman (1974) who showed that deciding whether the percentage of African nations in

the UN is higher or lower than 65% (high salient standard of comparison) leads to higher estimations

than making the first decision for a reference value of 10% (low salient standard of comparison).

With regard to money, several lines of research have documented how price estimations systematic-

ally deviate in the direction of such anchors, and how the perception of prices systematically depends

on the value of such anchors. For example, Northcraft and Neale (1987) have shown that lay persons’

(students’) as well as experts’ (real estate agents’) price estimations for real estate properties were

systematically affected by the listing price of these properties, although the participants

received sufficient information to make their own price estimations independently of this listing

148 Eva Jonas et al.

Copyright # 2002 John Wiley & Sons, Ltd. Eur. J. Soc. Psychol. 32, 147–169 (2002)

price. In bargaining research, it is a well-known phenomenon that the first offer serves as an anchor

that systematically affects the height of the first counteroffer (e.g. Kristensen & Gaerling, 1997, 2000).

As a third and final example, if people are first confronted with a high price for a product and,

subsequently, this price is lowered to a more moderate price, they are more willing to buy the

commodity than when they are confronted with the moderate offer to begin with (Burger, 1986). This

can be explained by assuming that the first price serves as a reference price, influencing the perception

of the subsequent moderate price via an anchoring effect (Burger, 1986, Experiment 5).

Such anchoring effects could also affect the perception of prices and salaries after the introduction

of the Euro. Since people are familiar with the nominal values in their former national currency, these

familiar values might be automatically salient and serve as an anchor if people consider new prices or

salaries in Euros. As a consequence, if the former national currency has lower nominal values than the

new currency (Euros)—this is only the case for the Irish Pound—the comparably low anchor values

would decrease price estimations and, in turn, would lead people to perceive the new prices and salaries

as being too high. If, however, the former national currency has higher nominal values than the Euro—

and this is the case for most countries (e.g. Germany and France)—from an anchoring perspective one

would expect the opposite effect. Since the familiar prices (the anchor values) lie above the new prices,

these prices should appear comparatively low, and the same should be true for salaries. If, in turn, these

people are asked to estimate the appropriate price for a given product, they should overestimate this

price compared to people who make the same estimation in their former national currency.

To sum this up, both processes that operate on the change in nominal values from the German Mark

to the Euro, namely money illusion and anchoring, lead to the same prediction. In the case of Germany,

since the nominal values in Euros are lower compared to DM, the same real prices and salaries should

appear lower if they are given in Euro compared to DM. Thus, identical real salaries should appear less

attractive if they are given in Euro than if they are given in DM. In addition, people in Germany should

tend to make higher price estimations if they use the Euro than if they use the DM because identical

real Euro prices appear lower than their corresponding equivalents in DM.

Aside from these effects caused by the changes in nominal values, the change of the money system

itself from a national to an international, pan-European currency could have an impact on processes

like the perception of salaries and the estimation of prices. People might have a different attitude

towards the Euro than towards the old national currency, and attitudes can influence the perception of

money in general and processes like price estimation in particular. Comparing different amounts of

money, Brandstatter and Brandstatter (1996), for example, found that the subjective value of money

was influenced by the participants’ monthly net income and their attitudes towards money. A study in

Poland demonstrates the different attractiveness of the same real monetary values in different

currencies. Ostaszewski, Green, and Myerson (1998) investigated the subjective value of a delayed

reward with the same values but labelled in different currencies, namely old zlotys, new zlotys and

dollars. They found that the subjective value of a reward was valued less when its amount was

specified in old zlotys, which was associated with high inflation rates, than when it was specified in

dollars. This effect clearly exceeded the amount, which could be explained by the decrease in

purchasing power predicted by the actual rate of inflation. Compared to the new zloty, which was

considered to be much more stable than the old zloty, the value of the dollar was no longer considered

as being greater. This finding shows that the rated attractiveness of money is influenced by people’s

attitudes towards the currency.

Even the perception of the size of coins and notes depends on subjective values, as it is evident from

the classical study of Bruner and Goodman (1947), who demonstrated that valuable objects like coins

tend to be perceived as larger than they really are and that this overestimation effect is more

pronounced among poor than among rich children (see also Dawson, 1975; McCurdy, 1956; Smith,

Fuller, & Forrest, 1975; Tajfel, 1957). In times of high inflation rates people underestimate the size of

Psychological effects of the Euro 149


coins and notes (Furnham, 1983; Lea, 1981; Leiser & Izak, 1987), which can be explained by the fact

that inflation causes a loss of trust in the currency and people develop a negative attitude towards the

currency (Leiser & Izak, 1987). These findings underline that social knowledge and attitudes affect not

only cognition and judgements that have an inherently social nature but also cognition about physical

features such as the size of an object (Stapel & Koomen, 1997).1

Having shown that the perception of a currency is widely influenced by people’s attitudes towards

the currency, the question arises what we know about the attitudes towards the Euro and what could be

the consequences for price estimations and the attractiveness of salaries in Euros. While in Southern

European countries like, for example Italy, Spain or Greece, the attitude towards the Euro is

predominantly positive, the attitude of people in the Northern-Central countries such as the

Netherlands, the United Kingdom, Sweden or Germany is more reserved (Pepermans & Verleye,

1998). This is paralleled by the finding that in the Northern-Central countries, the attitude towards the

Euro can largely be explained by pride in the own national currency; this pride induces an aversion

against losing the national currency (Dehm & Muller-Peters, 2001; Muller-Peters, 1998; Pepermans &

Verleye, 1998; van Everdingen & van Raaij, 1998). In addition, the attitude towards the Euro in such

countries is highly influenced by pride in national economic achievements and the fear of negative

consequences for the economy. The more people feel that the new currency increases the risks for

the national economy, endangers its economic growth, and increases unemployment as well as the

inflation rate, the less the Euro is accepted (van Everdingen & van Raaij, 1998). In addition, a lot of

people expect the economic situation to worsen also in micro-economic terms, i.e. with regard to

wages, prices and interest rates (van Everdingen & van Raaij, 1998 for the Netherlands, Kiell &

Muller-Peters, 1999 for Germany). These findings are in line with social identity theory (Tajfel &

Turner, 1986) since national identity—which manifests itself in history, collective values, achieve-

ments and symbols, such as the currency—is part of the social identity. However, the European

currency and economic change is not much of a threat to the national pride of the Southern European

countries since they seem to express their national pride more through cultural and historical

achievements (Pepermans & Verleye, 1998; van Everdingen & van Raaij, 1998). Therefore, in these

countries, national identity is not going to compete with the European identity (Cinnirella, 1996 for

Italy; Luna-Arocas, Guzman, Quintanilla, & Farhangmehr, 2001 for Spain and Portugal). This is also

in accordance with social identity theory (Pepermans & Verleye, 1998; Tajfel & Turner, 1986), since

groups or nations, respectively, define their social identity on dimensions in which they fare well, when

compared to other relevant groups or nations.

In Northern-Central countries, national currencies as constituent parts of the social identity arouse

commitment and emotional attachment (Helleiner, 1998; van Everdingen & van Raaij, 1998). For

Germany, for example, the site of our studies, the German Mark (DM) is an important national symbol

which stands for a successful history of currency stability, high reputation in foreign countries, and a

rising and stable prosperity in Germany. The Germans’ identity and self-esteem have been, and still

are, tightly interrelated to economic success and the German Mark, which stands for the positive

aspects of German history. National identity in Germany goes hand in hand with economic identity,

which in turn provides the perception of a positive distinctiveness in comparison with other nations

(Dehm & Muller-Peters, 2001; Muller-Peters, 1998).

The introduction of the Euro threatens the identity-giving symbol of the German Mark since after

the introduction of the Euro the DM will disappear as a national symbol. A study by Greitemeyer,

Jonas, and Frey (2001) shows that the DM is regarded as more attractive, stable, and positive in

comparison to the Euro. Even the US dollar is preferred to the Euro and is considered as being more

1Looking at the perception of money the other way round one can find that the perceived value of a currency is influenced by thesize of the coins (Boustead, Cottee, Farquhar, Jonas, Walter, & Webley, 1992) as well as their thickness, colour and elaborationof their edges (Bruce, Gilmore, Mason, & Mayhew, 1983).



attractive and stable. Of all three currencies, the DM is the most preferred. Survey results in Germany

in December 2000 revealed that with regard to the question of whether people are in favour or against

the introduction of the Euro, there were only 47% supporters of the Euro as opposed to 44%

opponents, while 9% did not know (cf. Eurobarometer 54, European Commission, 2000).2

In general, it is justified to say that the majority of the Germans expect the economic situation to

worsen after the introduction of the Euro (Kiell & Muller-Peters, 1999). This negative attitude towards

the Euro could not only lead to the new currency being evaluated as less attractive than the DM

(Greitemeyer et al., 2001) but, over and above that, could reduce people’s motivation to commit

themselves to obtaining monetary amounts in Euros—for example, as a reward (cf. Ostaszewski et al.,

1998) or as a salary. Furthermore, in the area of consumer spending, the Euro could be perceived as

‘smaller’ (i.e. having less economic value), since it is a less valued object compared to the DM (in the

sense of the Bruner & Goodman, 1947 findings). Therefore, people might have the impression that

they can buy less with the Euro as compared to the strong and stable DM. Price estimations, in turn,

should be higher in Euros compared to DM.

In sum, in this overview we have outlined possible psychological changes in the perception and

estimation of prices and salaries caused by the introduction of the Euro. Whereas some of these

processes are triggered by the pure change in nominal values (money illusion, anchoring effect), others

are based on people’s attitudes towards the Euro (devaluation of the Euro if people hold a negative

attitude towards this currency). Interestingly, all these processes lead to the same prediction for

Germany. Whenever one of these processes is at work, we should expect people in Germany to

perceive the same real salary as being more attractive if it is given in DM than if it is given in Euros. Of

course, the same should be true for prices. The same real price should appear lower if it is given in

Euros than if it is given in DM. In turn, people should estimate higher real prices for the same product

if they make this estimation in Euros than if they make this estimation in DM.

To investigate whether or not these psychological effects of the Euro do in fact occur and, if so,

which of the processes outlined above is responsible for these effects, we ran five studies. In the first

two studies, we compared people’s perception of salaries (Study 1) and estimation of prices (Study 2)

in Euros versus DM. In Studies 3 to 5, each of the three processes outlined above (attitude-based

devaluation of the Euro, money illusion, anchoring effect) was tested as a possible explanation for the

effects found in Studies 1 and 2. All studies were carried out in Germany and were conducted between

the autumn of 1998 and the spring of 2001.

STUDY 1

Participants were asked to evaluate the attractiveness of job offers depending on the salary being paid

in DM or Euros. The study was based on the consideration that the present nominal value of a salary in

DM will be roughly divided in half after the introduction of the Euro. (An employee presently earning

80,000 DM a year will receive approximately 40,000 Euros as a salary after the introduction of the

Euro.) The real purchasing power, however, will not be changed by the monetary reform. On the other

hand, as we have outlined in the theoretical introduction, what could change is how people evaluate the

attractiveness of their own salary. More precisely, the prediction derived from our theoretical

considerations was that people would evaluate an annual salary in Euros as less attractive than the

corresponding amount in DM. However, we felt that simply letting people rate the attractiveness of a

given salary on a rating-scale might be a somewhat unreliable and imprecise measure of how attractive

this salary really appears to the participants. Thus, we used a more direct and behavioural indicator of2Among the 12 members of the European Monetary Union, Germany ranks second to last, just ahead of Finland with 45%supporters and 49% opponents, whereas Italy ranks first with 79% supporters and only 17% opponents.



attractiveness. The more attractive a salary is considered to be, the more employees are expected to be

willing to face difficulties in order to obtain the sought position. The time it takes to get to work is one

such impediment. Thus, we asked our participants what upper time limit they would be willing to

accept on commuting to work for a given salary. We assumed that their willingness to take longer

travelling times into account would be lower if their salaries were paid in Euros rather than in DM.

Method

Participants

One hundred and twenty students of an introductory psychology class (82 female, 38 male)

participated in this study. The age of the participants ranged between 18 and 64 years.

Design

The experiment is based on a 2 (currency: DM versus Euros)� 5 (salary range: 60,000 DM/30,000

Euros versus 76,000 DM/38,000 Euros versus 90,000 DM/45,000 Euros versus 100,000 DM/50,000

Euros versus 110,000 DM/55,000 Euros) factorial between-subjects design. Participants were ran-

domly assigned to experimental conditions.

Procedure

The study was conducted during one of the lectures. The participants received a short questionnaire on

which they were asked to imagine themselves having finished their university studies and being

presented with a job offer with a certain annual gross income. One half of the participants were made

offers with incomes given in DM, whereas the others were made offers that were specified in Euros.

The annual gross income varied between 60,000 DM and 110,000 DM, and between 30,000 Euros and

55,000 Euros, respectively. The participants had to indicate for which maximum amount of travelling

time (in minutes) for a one-way trip to their workplace they would be willing to accept the offer.

Results and Discussion

One participant who indicated that he would generally not take the offered job for 60,000 DM was

excluded from the analysis. Another participant was also excluded because she stated her willingness

to spend three hours one way to get to work, which exceeded three standard deviations from the mean

of M¼ 57 minutes. (In fact, this would mean that this person would spend six hours a day just to get to

her workplace and back home.) The means of time participants were willing to spend in order to get to

work (single trip) for each condition are displayed in Table 1. The ANOVA revealed two significant

main effects. First, the higher the offered salary was, the more time the participants were willing to

invest to get to work, F(4, 108)¼ 3.74, p< 0.01, �2¼ 0.12. For 60,000 DM/30,000 Euros they were

willing to accept a distance of M¼ 45.77 min (SD¼ 21.53), for 76,000 DM/38,000 Euros the

average distance was M¼ 50.20 min (SD¼ 19.97), for 90,000 DM/45,000 Euros it was M¼ 64.09

(SD¼ 30.42), for 100,000 DM/50,000 Euros it was M¼ 56.19 (SD¼ 22.69), and for 110,000 DM/

55,000 Euros the average accepted distance was M¼ 67.29 (SD¼ 21.16). This effect is, of course, not

surprising because it simply reflects a cost–benefit trade-off. However, it underlines that our

participants did take the experimental material seriously and made rational calculations, even though

their answers were purely hypothetical.



More importantly, the main effect for currency was also significant, F(1, 108)¼ 7.97, p< 0.01,

�2¼ 0.07. For job offers figured in Euros, the willingness to invest time was significantly lower

(M¼ 50.09 min; SD¼ 22.13) than for the same job offers figured in DM (M¼ 62.21 min,

SD¼ 24.99).3 This result supports our prediction that the same real salary would appear less attractive

if it was given in Euros than if it was specified in DM. As outlined in the introduction, these differences

in the perception of salaries can be caused by different kinds of processes, some of which operate on

the simple change in nominal values (money illusion, anchoring effect), whereas others are based on

people’s attitudes towards the Euro—which are somewhat negative in Germany. However, prior to

differentiating between such underlying psychological processes, it seems necessary to confirm our

predictions with a different dependent measure, namely price estimation. Thus, in Study 2 we looked

at the area of consumption and asked participants to estimate appropriate prices for different consumer

goods either in Euros or in DM.

STUDY 2

This study was designed to examine whether and how the introduction of the Euro has an effect on

price estimation of various consumer goods. On this occasion, some participants were asked to

estimate the prices of products from a department store catalogue in Euros, whereas others had to

estimate prices in DM. As outlined above, our hypothesis was that people asked to estimate the

products’ prices in Euros would estimate higher prices than people who had to estimate prices in DM

because, due to either cognitive processes such as money illusion or anchoring or to an attitude-based

depreciation of the Euro, the same real amount of money (the same real prices) should appear lower if

specified in Euros than if specified in DM. Thus, prices in Euros should undergo a ‘surcharge’.

Method

Participants

Sixty adults (30 male and 30 female) with ages ranging from 18 to 67 participated in this study. The

participants were recruited in a public building in Munich and were asked to participate in a brief

experiment on ‘shopping’.

Table 1. Average number of minutes that participants are willing to spend to get to work (single trip) in Study 1

Currency

DM Euros

M SD N M SD n

Job offer 60,000 DM/30,000 Euros 48.46 23.40 13 43.08 20.06 1376,000 DM/38,000 Euros 57.69 17.15 13 42.08 20.28 1290,000 DM/45,000 Euros 72.27 36.63 11 55.91 21.31 11

100,000 DM/50,000 Euros 60.00 17.75 11 52.00 27.51 10110,000 DM/55,000 Euros 73.85 20.73 13 59.55 19.81 11

3Even if we take into account that the conversion rate is 1 Euro to 1.96 DM (and therefore the salaries presented in Euros did notequal exactly the salaries presented in DM) the significance of our results do not change, F(1, 108)¼ 6.53, p< 0.02.



Design

The experiment is based on a one factorial between-subjects design with two experimental conditions

(currency: DM versus Euros). Participants were randomly assigned to experimental conditions.

Procedure

A catalogue containing illustrations of 11 different consumer goods (e.g. a CD player, a rubber dinghy)

was handed to the participants. These articles had been chosen from the catalogues of various mail

order firms. The real prices of the items covered a range from 200 to 800 DM. A picture of each

product was shown with prices and other descriptive details removed. The catalogue was given to each

participant individually. The participants were asked to look at each picture separately and then

spontaneously estimate an appropriate price for the corresponding product. The participants in the DM

condition had to give the prices in DM, those in the Euro condition gave them in Euros. In order to

avoid complicated currency conversions, the participants in the Euro condition were asked to use an

exchange rate of 2 DM to 1 Euro (instead of the real exchange rate of 1.96 DM to 1 Euro).


Three participants in the Euro condition were excluded from the analysis because they failed to follow

the instructions on the conversion rate. For a better comparison of the data in the experimental

conditions, the given Euro sums were multiplied by two, in accordance with the conversion rate used

by the participants, to arrive at the equivalent DM figures.4 The effect for the currency factor reached

significance, F(1, 55)¼ 5.06, p< 0.03, �2¼ 0.08. The corresponding means revealed that the average

price estimations for the consumer goods were lower in the DM condition (M¼ 349.24, SD¼ 86.03)

compared to the Euro condition (M¼ 418.54, SD¼ 142.77). Thus, the results show that estimating

prices in Euros leads to higher subjectively appropriate prices than estimating the same prices in DM.

This result is completely in line with our predictions derived from the theoretical introduction and

with the finding from Study 1, where the same real salary was considered as being less attractive if it

was given in Euros than if it was given in DM. The subjective value of the same amount of money was

lower if the currency was Euros than if this currency was DM. This, in turn, leads to higher price

estimations in Euros compared to DM. One important aspect of these findings is that both for the

context of salaries and for the context of consumption, the judgmental implications differed between a

situation given in Euros versus DM, although the rest of the situation is absolutely identical. Thus,

what we have found with regard to the Euro could be seen as an analogy to what is called the violation

of the ‘invariance axiom’ in the context of decision-making research (Tversky & Kahneman, 1988).

Just as alternative representations of the same situation should lead to the same choice, the same real

amounts of money given in different currencies should yield the same judgemental response.

However, drawing such conclusions is only justified to the extent that the two situations—apart

from the different currencies—are really identical for the participants; and there is at least one

possible alternative interpretation. Rather than reacting to the currency, the participants might have

reacted to the time frame activated by the currency. Studies 1 and 2 were conducted during the second

half of 1998. People who were asked to make price estimations or rate the attractiveness of salaries in

DM may have made their judgements with regard to the prevailing time frame, whereas people asked

4As the participants had been told in advance to use a currency rate of 2:1 (to avoid extensive mathematical calculations), thesame rate was used in the course of the calculation, and not the actual rate of 1.96:1.



to give the same ratings in Euros may have made their judgements against the background of a future

time frame (i.e. for 2002, the year of introduction of the Euro). If this were the case, one would expect

higher price estimations in the latter than in the former condition due to price inflation. This effect,

however, would be unrelated to the currency Euro per se; it would simply reflect the activation of a

different time frame through this currency. To check for this possible alternative explanation, in

Study 3 we explicitly manipulated the time frame within which judgements are made. People are

asked to estimate prices either for 1999 or for 2002, and this factor is crossed with the currency factor.

If the time frame interpretation were true, then keeping the time frame constant should make the Euro

versus DM effect disappear. Instead, the anticipated effect of the time frame should be that higher

prices are estimated for 2002 than for 1999.

In the event that the difference in price estimations is not due to different time frames but rather to

the currency Euro itself, this effect could be explained by different processes. As we have outlined in

the introduction, some of these processes, namely the ‘money illusion’ and ‘anchoring’, operate on the

change in nominal values from DM to Euros, whereas others operate on the whole change of the

monetary system (negative attitude towards giving up the national currency for an international,

European monetary system; subsequent debasement of the new currency). In Study 3 we dealt with the

latter processes. Since in Germany people’s attitudes towards the Euro are much more negative than

their attitudes toward the DM, they are reluctant to give up the DM and to trade it in for the Euro

(Greitemeyer et al., 2001). People suspect that their economic future would fare better if they kept

their national currency (DM), and many expect prices to rise after the introduction of the Euro (Kiell &

Muller-Peters, 1999; Peters, presentation at the XXIst conference of the International Association for

Research in Economic Psychology (IAREP), Paris, 1996; van Everdingen & van Raaij, 1998).

Compared to the strong and stable DM, the Euro seems to be considered as a weak and insecure

currency. This negative attitude towards the Euro could have led our participants in Study 1 to perceive

a Euro salary as less attractive than one in DM and therefore intuitively show less motivation to

commit themselves to obtaining the Euro salary. When estimating consumer prices in Euros, simply

the mere mention of the Euro could raise people’s reservation towards this currency and intuitively

lead to higher price estimations in the Euro condition compared to the DM condition.

If this explanation were true, then we should expect the Euro versus DM effect to be stronger

among people with a more negative attitude towards the Euro. Thus, we decided to measure our

participants’ attitudes towards the Euro and the DM and to test whether or not these attitudes moderate

the differences in price estimations between Euros and DM.

STUDY 3

As outlined above, the goals of Study 3 were twofold. On the one hand, we wanted to examine the

possibility that different time frames associated with making price estimations in DM versus Euros

could be responsible for the effects found in the first two studies. Whereas making judgements in DM

could activate a current time frame, giving the same judgements in Euros could trigger a time frame

dating to 2002 when the Euro actually replaces the national currencies in everyday life. Thus, people

could make higher price estimations simply in order to factor in the inflation rate up until that year.

Therefore, in Study 3 the time frame was manipulated and thereby kept constant for each participant.

Whereas in one condition the participants were asked to estimate the consumer goods prices at the

time of the study (summer of 1999), in the other condition we asked participants to estimate the prices

for the point in time after the introduction of the Euro, namely 2002. If the time frame was responsible

for the Euro versus DM effect, this effect should disappear (because the time frame is constant in each



condition); instead, the time frame factor should lead to a main effect indicating that higher price

estimations are made for 2002 than for 1999.

On the other hand, we wanted to investigate whether people estimate higher prices in Euros than in

DM because they hold a more negative attitude towards the former compared to the latter currency

and, thus, debase the Euro. For this purpose, we asked participants whether they thought that the Euro

would personally bring them more advantages or disadvantages and whether they thought that

the Euro would lead to increasing prices. If the results from the former studies are caused by the

participants’ attitude towards the Euro, one should expect that especially those participants who are

very sceptical with regard to the introduction of the Euro would show a more biased price estimation

than those participants who hold a neutral attitude or are even in favour of the Euro and optimistic

about the time after the introduction of this currency.

Method

Participants

Forty adults (27 male and 13 female) with ages ranging between 21 to 45 years participated in this

study. They were recruited in a public building in Munich.

Design

The study was based on a 2 (currency: DM versus Euros)� 2 (time frame: today [1999] versus time of

introduction of the Euro [2002]) between subjects design. Participants were randomly assigned to

experimental conditions.

Procedure

The procedure was similar to Study 2. The participants were given the catalogue and were asked to

estimate the appropriate price of each product. Participants made these price estimations either in DM

or in Euros. In the condition ‘time frame: today (1999)’ the participants were asked to estimate the

prices for today. In the condition ‘time of introduction of the Euro (2002)’ participants were asked to

estimate the prices for that time.

Next, the participants gave ratings on their attitudes towards the Euro. They were asked whether

they thought that they personally would benefit or be disadvantaged by the Euro (on a scale between

1¼ benefit and 5¼ disadvantage, with a value of 3 indicating that the participant thought the Euro

would not lead to any changes at all). They were further asked whether they thought that, due to the

introduction of the Euro, prices would tend to rise or decrease through the Euro (on a scale between

1¼ rise and 5¼ decrease, with a value of 3 indicating that prices were expected to remain stable).


As in Study 2, we converted the prices in the Euro conditions to DM prices. Table 2 shows the means

of the average estimated prices. The ANOVA revealed a significant main effect of the currency factor

on price estimations, F(1, 36)¼ 4.38, p< 0.05, �2¼ 0.11. Significantly higher prices were assessed in



the Euro conditions (M¼ 417.17, SD¼ 163.90) compared to the DM conditions (M¼ 328.02,

SD¼ 88.37). The main effect for time frame did not reach significance, F(1, 36)< 1. The means

were even somewhat in the opposite direction than predicted by the time frame hypothesis, as the

average price estimation for the 1999 time frame was M¼ 375.84 (SD¼ 109.75), whereas the mean

for the 2002 time frame was slightly lower (M¼ 369.35, SD¼ 163.68). Furthermore, the interaction of

both factors also did not reach significance, F(1, 36)< 1, indicating that the Euro versus DM effect was

not moderated by the time frame. Thus, we can rule out time frame effects as an alternative

explanation for the higher price estimations in Euros compared to DM.

We now turn to the two attitude measures and the question of whether the price estimation effects are

moderated by these measures. We tested this hypothesis with two different methods, namely one using

correlation measures and one using a post-hoc median-split. With regard to the first method, if the

‘attitude hypothesis’ were true, one would expect that price estimations in the Euro conditions are posi-

tively related to the question about personal advantages or disadvantages as a consequence of the Euro,

since high values on this item indicate that the person expects the disadvantages to dominate—and this, in

turn, should lead the person to devalue the Euro. However, this correlation did not reach significance

(r¼ � 0.21, p> 0.35) and even pointed in the opposite direction. For the second attitude-related

question, namely whether the person expects prices to rise or decrease as a consequence of the Euro

introduction (with higher values indicating an expectation that prices will decrease), one would expect a

significant negative correlation with price estimations in the Euro conditions. Although in this case the

empirical correlation pointed in the predicted direction (r¼ � 0.26), it was not significant (p> 0.25).5 In

sum, we found no correlational evidence for the hypothesis that a negative attitude towards the Euro is

responsible for the higher price estimations compared to the DM.6

Table 2. Estimation of prices in Study 3

Currency

DM Euros

M SD N M SD n

Time frame today (1999) 320.61 80.69 10 431.07a 110.18 10after the introduction 335.43 99.27 10 403.28a 210.11 10of the Euro (2002)

Note: aThis value corresponds to the mean of the price estimation in DM. All values were calculated in DM.

5The intercorrelation of the two attitude items was too low to allow for an aggregation of both items into an overall attitudemeasure (r¼ � 0.16, p> 0.30). Furthermore, it should be noted that measures of the participants’ attitudes toward theEuro in our sample were neither clearly positive nor clearly negative. The mean for the question whether they wouldpersonally benefit from the Euro or not was M¼ 2.77 (SD¼ 1.24 on a scale from 1¼ benefit to 5¼ disadvantage. Thisvalue did not differ significantly from the scale midpoint of 3, t(38)¼ 1.16, p> 0.20. Regarding the question whether theEuro would rather lead to decreasing or to rising product prices, the mean wasM¼ 2.83, SD¼ 0.84 on a scale from 1¼ riseto 5¼decrease. This value also did not differ significantly from the scale midpoint of 3, t(39)¼ 1.31, p> 0.15.6Against this conclusion, one might object that the participants’ attitudes towards the Euro were measured with only two itemsand, therefore, insufficient reliability could be responsible for the lack of evidence with regard to the attitude hypothesis. Thus,we ran an additional small study (N¼ 15, 6 male and 9 female participants aged between 17 and 60) in which we measuredparticipants’ attitude towards both the Euro and the DM more extensively with 6 items for each currency. We asked theparticipants about the subjective attractiveness, stability, valence, security, calculability and likeability of each currency.These measures showed high reliability (DM scale �¼ 0.90, Euro scale �¼ 0.94). Participants exhibited a somewhat morepositive attitude towards the DM (M¼ 7.17) than to the Euro (M¼ 5.78), t(14)¼ 1.76, p¼ 0.10. However, there was nocorrelation with price estimations in Euros (for the attitude towards the Euro r¼ 0.08, p> 0.75, for the attitude towardsthe DM r¼ � 0.13, p> 0.65).



These results are confirmed by two additional 2� 2 ANOVAs, using post-hoc median-splits of both

attitude items each in addition to the currency factor ‘currency’. Both analyses revealed the effect for

currency, F(1, 35)¼ 4.21, p< 0.05, �2¼ 0.11 for advantages/disadvantages as second factor,

F(1, 36)¼ 3.72, p¼ 0.06, �2¼ 0.09 for price rise/decrease as second factor. Furthermore, in none of

these analyses the main effect of the median-split factor or, more importantly, the interaction of both

factors reached significance (all Fs< 1, all ps> 0.35). Participants showed about the same price

estimations in Euros, no matter whether they thought that they would personally benefit from the Euro

(M¼ 423.65) or not (M¼ 415.56), or whether they thought that due to the introduction of the Euro the

prices would tend to rise (M¼ 424.06) or decrease (M¼ 414.22). If the higher price estimations in

Euros compared to DM (and, in turn, the lower attractiveness of Euro compared to DM salaries) were

due to the fact that people in Germany hold a negative attitude towards the Euro, devalue the Euro and,

thus, value the same amount of money less if it is in Euro than if it is in DM, one should expect that the

differences in price estimation occur particularly among persons with a more negative attitude toward

the Euro, and less among persons with a more positive attitude towards this currency. However, the

results did not hint at such a moderation. Thus, both the correlational and the quasi-experimental data

analysis revealed converging evidence, leading to the conclusion that negative attitudes towards the

Euro are not responsible for the higher price estimations in Euros versus DM.

Study 3 revealed another replication of the Euro versus DM effect. However, the question of how

this effect is caused remains unanswered. One of the three mechanisms outlined in the theoretical

introduction, namely attitude-based devaluation of the Euro, was not supported in Study 3. Although

we must be aware that the statistical power of our samples was rather limited and therefore the attitude

explanation cannot be ruled out definitely, we will now turn to the two other candidates in order to

further investigate the effect. Both mechanisms are not related to the replacement of the monetary

system, but rather with the change in nominal values from DM to Euros. One of these candidates is the

‘money illusion’ (Fisher, 1928; Shafir et al., 1997). As outlined above, the money illusion describes the

effect that the perceived value of a particular amount of money in a given currency is positively

correlated with the magnitude of its figures since people tend to focus on the nominal values of notes

and coins and disregard the real value. As a consequence, 100 DM would appear more valuable than

(approximately) 50 Euros simply because ‘100’ is larger than ‘50’. Therefore, lower nominal figures

in one currency lead to the perception that a consumer good is cheaper whereas higher nominal figures

in another currency lead to the perception that the consumer good is more expensive, although the real

values might be identical in both cases (Shafir et al., 1997).7 As a consequence, people might perceive

a price of 400 DM as appropriate for a CD player, but they might find that 200 Euros is too cheap for

the same product.

The other possible explanation for psychological effects of the Euro based on its nominal value are

anchoring effects in price perception and price estimation (e.g. Northcraft & Neale, 1987). That is, if

people have relatively high salient standards of comparison when making price estimations, these

estimations deviate upwards (from the estimations of people without any standard of reference, i.e.

without any anchor), and when these salient standards are relatively low, the same estimations deviate

downwards. In our case, the critical feature leading to higher price estimations in Euros compared to

DM would be the fact that the familiar DM prices constitute anchors for the estimation of the new Euro

prices. Since the old prices are higher than the new ones, higher price estimations are the consequence.

In Studies 4 and 5, we attempted to test these two competing explanations.

7Obviously, one would expect the money illusion effect to work only within certain boundaries. For example, it does not seemplausible that the extreme magnitude of the figures of the Italian Lira lead to a proportional increase in the perception of thevalue.



STUDY 4

How can the money illusion hypothesis be tested against the anchoring hypothesis? One conclusion to

be drawn from the money illusion hypothesis is that the effect observed in comparing price estimations

in Euros versus DM should not be specific for the Euro but instead should occur for other currencies as

well if the conversion rate leads to lower nominal figures compared to the DM. On the other hand, an

opposite phenomenon to the Euro versus DM effect should occur with currencies that incorporate

higher nominal figures than the DM. Since in this case the same real amount of money leads to higher

nominal figures compared to the DM, identical real prices should appear higher if they are given in this

currency than if they are given in DM. Lower price estimations compared to the DM should be the

consequence.

Thus, in Study 4, in addition to Euros and DM, two further currencies were introduced: the

British Pound and Austrian Schilling. These two currencies were chosen because one of them

(Austrian Schilling; exchange rate¼ 7 Schilling for 1 DM) is characterised by higher, the other

(British Pound; exchange rate ¼ 0.35 British Pound for 1 DM) by lower nominal values compared

to the DM. If our results can be explained by the phenomenon of the money illusion, the participants

estimating prices in British Pounds should exhibit the same effect as participants in the Euro

condition. Since, for example, a CD player for £140 should appear cheaper than the same player for

400 DM, participants in the British Pound condition should estimate higher prices than participants

in the DM condition. Strictly stated, the effect should be even larger in the British Pound condition

since the exchange rate of about £0.35 to 1 DM leads to even smaller nominal figures than the

conversion rate of about 0.50 Euro to 1 DM. On the other hand, participants estimating prices in

Austrian Schillings are confronted with larger numbers. Therefore, they should make adjustments in

the opposite direction and thereby arrive at lower price estimations than participants in the DM

condition.

In contrast to the money illusion, anchoring effects should be unaffected by the manipulations in the

latter two conditions. More specifically, we would not expect any anchoring effects to occur in these

conditions. The reason for this prediction is that making price estimations in British Pounds or

Austrian Schillings intuitively triggers a cognitive set of shopping in a foreign country. In German

shops, with which the participants are familiar, products are not designated in British Pounds or

Austrian Schillings. Thus, the well-known DM prices do not seem applicable to this setting. Since it

was demonstrated that the strength of anchoring effects depends on the applicability of the anchoring

information to the judgemental context (Strack & Mussweiler, 1997), we can assume that we should

find no (or, at least, smaller) anchoring effects for British Pounds or Austrian Schillings. In contrast,

when these price estimations are made in Euros, the salient frame of reference for the participants is

‘shopping at home’ because the Euro is considered as their own currency. In this situation, the familiar

prices that the participants have learned in exactly this context interfere and constitute anchors for the

estimation of new Euro prices.

Method

Participants

Sixty adults (24 male and 36 female) with ages ranging from 18 to 60 participated in this study. They

were recruited in a public building in Munich. Participants were randomly assigned to the experi-

mental condition.



Design and Procedure

The study was based on a one-factorial between subjects design with four experimental conditions: the

DM and Euro conditions were created in analogy to Study 2. In the ‘British Pound’ condition, prices

had to be estimated in British Pounds (at a conversion rate of £0.35 to 1 DM) and in the ‘Schilling’

conditions in Austrian Schillings (at a rate of 7 OS to 1 DM). There were 15 participants in each

condition. As in Studies 2 and 3, the participants were given the catalogue and were asked to estimate

the appropriate price of each product.


As in Studies 2 and 3, we converted all prices into DM. Table 3 shows the means of the average

estimated prices for each condition. The factor ‘currency’, once again, had an effect on price

estimations, F(3, 56)¼ 3.27, p< 0.03, �2¼ 0.15. Post-hoc tests (LSD method) showed that signifi-

cantly higher prices were assessed in the Euro condition (M¼ 433.44, SD¼ 95.11) compared to the

DM (M¼ 329.95, SD¼ 67.90), Pound (M¼ 346.26, SD¼ 135.90), and Schilling (M¼ 338.22,

SD¼ 101.81) conditions, all ps< 0.03, with the latter three conditions not differing significantly

from each other, all ps> 0.65. Obviously, the money illusion hypothesis that the perceived value of a

given amount of money is positively correlated with the magnitude of the price figure could not be

confirmed. Neither did the participants make higher price estimations in British Pounds, nor did they

estimate lower prices in Austrian Schillings, both compared to the DM condition. We also did not find

any hint that estimating prices in a foreign currency generally leads to a surcharge intended to make

people feel ‘on the safe side’. Thus, a lack of familiarity with a certain currency cannot explain the

results either.

However, as suggested by the anchoring hypothesis, there is a specific effect of the Euro currency.

Only in the case of price estimations in Euros, on average, were higher prices estimated compared to

DM. As suggested above, we assume that the specific effect of the Euro is caused by the fact that only

those anchors influence a judgement that are applicable to the object of judgement (Mussweiler,

Forster, & Strack, 1997, Study 3; Strack & Mussweiler, 1997, Study 1). We assume that for those

participants who estimated prices in Euros, the mental frame of their own country and their own shops

was activated since the Euro is going to replace the former national currency soon and had already

been, in fact, introduced into the economy in 1999. Thus, when people estimate prices in Euros, they

should have the same mental frame (shopping at home) as people who make price estimations in DM.

If these people are confronted with pictures of particular products, salient images should be activated

in which the products are combined with pricing labels in the familiar and well-known DM currency;

and these salient DM prices could serve as anchors in the process of making price estimations in Euros.

Table 3. Estimation of prices in Study 4

M SD nCurrency

DM 329.95 67.90 15Euro 433.44a 95.11 15British Pound 346.26a 135.90 15Austria Schilling 338.22a 101.81 15

Note: aThis value corresponds to the mean of the price estimation in DM.All values were calculated in DM.



The situation in the case of estimating prices in British Pounds or Austrian Schillings is quite

different. British Pounds and Austrian Schillings are clearly foreign currencies, which will never

become a trade denomination for Germany (at least the participants do not expect this to happen).

Therefore, a different mental frame, namely shopping in a foreign country, should be activated, and

prices in DM should not appear applicable to this frame. In sum, the results of Study 4 are in line with

the anchoring hypothesis. However, Study 4 does not provide unequivocal evidence for the correctness

of the anchoring hypothesis since we only excluded the money illusion mechanism as an explanation

for our results. Therefore, in Study 5 we aimed to examine the anchoring hypothesis more directly.

STUDY 5

One possibility to directly test the anchoring hypothesis is to remove (or at least reduce) the

applicability of the familiar prices in DM as an anchor when estimating prices in Euros. If the DM

prices no longer seem applicable as an anchor, price estimations in Euros should no longer be different

from price estimations in DM. In order to implement this, in Study 5 we manipulated the participants’

mental frame, namely by asking them to imagine a shop in their home country (Germany) versus a

shop in a foreign country. In the latter case, we asked participants to estimate prices in Euros versus

DM for shops in Ireland. In such a situation, the familiar DM prices should not serve as an anchor since

the anchoring information for the domestic prices is not applicable for price estimations in Ireland.

In Study 5 we thus crossed the factor currency (DM versus Euros) with the factor ‘mental frame’

(familiar [Germany] versus unfamiliar [Ireland]). As outlined above, if the anchoring hypothesis is

correct we should replicate the difference between DM and Euros only in the case of a familiar mental

frame (Germany). In the case of Ireland as a mental frame, the familiar DM prices should not

constitute anchors and, thus, no difference between the Euro and DM conditions should occur.

Method

Participants

Eighty adults (38 male and 42 female) with ages ranging from 18 to 62 years participated in this study.

They were recruited in a public building in Munich.

Design

The study was based on a 2 (currency: DM versus Euros)� 2 (mental frame: familiar [Germany]

versus unfamiliar [Ireland]) between-subjects design. Participants were randomly assigned to experi-

mental conditions; there were 20 participants per condition.

Procedure

As in Studies 2 to 4, the participants were given the catalogue and were asked to estimate the

appropriate price of each product. Participants estimated the prices either in DM or in Euro. The

condition ‘mental frame: Germany’ was identical to the previous studies. In the condition ‘mental



frame: Ireland’, participants were asked to imagine estimating the prices for shops in Ireland. To make

the two conditions comparable, it was emphasised that the price level in Ireland was about the same as

in Germany.


As in the previous studies, all prices were converted to DM. Once again, the main effect for currency

was significant, F(1, 76)¼ 6.34, p< 0.02, �2¼ 0.08. Significantly higher prices were assessed in the

Euro conditions (M¼ 425.54, SD¼ 156.30) compared to the DM conditions (M¼ 347.33,

SD¼ 127.30). The main effect for mental frame did not reach significance, F(1, 76)¼ 1.10,

p> 0.25, �2¼ 0.01. However, in accordance with the anchoring hypothesis, the main effect for

currency was qualified by a significant interaction with mental frame, F(1, 76)¼ 5.02, p< 0.03,

�2¼ 0.06. Simple effect analyses showed that only with the familiar frame (Germany) price

estimations in Euros were significantly higher (M¼ 476.59, SD¼ 186.05) than price estimations in

DM (M¼ 328.80, SD¼ 77.89), t(76)¼ 3.36, p< 0.002. In the unfamiliar frame ‘Ireland’, the

difference disappeared (Euro: M¼ 374.50, SD¼ 100.21; DM: M¼ 365.86, SD¼ 162.70),

jtð76Þj<1, p> 0.80. This interaction effect is illustrated in Figure 1.

Further post-hoc analyses between the four conditions (LSD method) revealed that significantly

higher prices were assessed in the ‘Euro–Germany’ condition compared to all other three conditions

(‘DM–Germany’, ‘Euro–Ireland’, ‘DM–Ireland’), all ps< 0.05), with the latter three conditions not

differing significantly from each other (all ps> 0.30). Thus, the unfamiliar frame ‘shopping in Ireland’

did not heighten the participants’ price estimations in DM but rather lowered their price estimations in

Euros.

The results of Study 5 clearly support the anchoring hypothesis. If we induce an unfamiliar mental

frame when the participants estimate prices in Euros—the image of Irish shops that, according to the

anchoring hypothesis, should not fulfil the condition of applicability for using familiar DM prices as

anchors—the effect of different price estimates in Euros versus DM disappeared, whereas for the

Figure 1. Interaction effect of currency (Euro versus DM) and frame of reference (Germany versus Ireland) inStudy 5. The Euro versus DM effect disappears if price estimations are made within an unfamiliar frame ofreference, namely estimations for shops in Ireland (instead of Germany). All means are converted into DM;N¼ 20 in all conditions



familiar frame (Germany) we replicated the central finding from the studies above, namely that the

price estimates in Euros were significantly higher than those in DM. Thus, Study 5 reveals strong

indications that the difference between perceiving the same amount of money in Euros versus in DM is

caused by the difference in numerical values and that, furthermore, the nominal values of the former

familiar currency interfere with the perception of the new currency. Only if the applicability of the

former familiar currency is blocked by introducing an unfamiliar mental frame, the DM versus Euro

effect disappears.

GENERAL DISCUSSION

The trigger for the research reported here was the consideration of the possible psychological effects of

the forthcoming currency reform introducing the Euro. The starting point of our studies was the

question of whether and in what respects the introduction of the Euro would influence people’s

perception of money. We raised the question of whether it makes a psychological difference for people

to confront the new Euro as compared to their former national currency given that the real value of the

money remains about the same. In our studies, we concentrated on two specific and important aspects

of money perception, namely the attractiveness of particular salaries and the estimation of prices for

consumer goods. Three hypothetical processes, namely the money illusion, anchoring effects and an

attitude-based devaluation of the Euro were outlined. In the case of Germany, all these processes led to

the same prediction, namely that the same real amount of money would appear lower if it was given in

Euros than if it was given in DM. In turn, we predicted that identical real salaries would be less

attractive in Euros than in DM, and higher prices for consumer goods would be estimated if these

estimations were made in Euros compared to DM.

The results of our first two studies confirmed these predictions and indeed showed that it makes a

difference whether an otherwise identical situation is given in Euros or DM. When wages were

specified in Euros, people showed less willingness to accept difficulties associated with a job offer

compared to wages given in DM. When asked for their estimation of appropriate prices for various

consumer goods, people made higher estimations in Euros than in DM.

As Study 3 clarified, these different judgements in the Euro versus DM conditions did not result

from different time frames being activated by these currencies. Because people making judgements

with regard to DM could frame the situation as ‘current’ (1999, the time when the study was

conducted), whereas judgements in Euros could activate a future time frame (2002 or later), people

could have simply factored in the expected inflation rates up to that time. However, this was not

the case. Furthermore, Study 3 revealed that, although participants in general held a more negative

attitude towards the Euro than towards the DM, these attitudes were not associated with price

estimations. Thus, we could not support the attitude-based devaluation hypothesis. In Study 4,

we found out that the effects mentioned above only occurred in connection with the Euro and not with

the conversion into other foreign currencies. When converting prices to British Pounds or Austrian

Schillings, no difference in price estimation compared to the DM resulted. Thus, we demonstrated that

in case of the conversion to the Euro, a different kind of phenomenon was involved than that which is

familiar to many holiday-makers in foreign countries and which psychologists call the ‘money

illusion’, indicating that the perceived value of a currency is positively correlated with the magnitude

of its figures (Shafir et al., 1997). If money illusion had been the underlying mechanism for the Euro

versus DM effect, one should also have expected higher price estimations in British Pounds, whereas

in Austrian Schillings price estimations should have been lower than in the DM condition. None of

these effects occurred.



Finally, in Study 5 we successfully demonstrated that the differences between the DM and Euro

conditions in the former studies were due to anchoring effects: When people make judgements in

Euros, then ‘normally’ this judgement activates a familiar mental frame—in the case of price

estimations, this frame might be called ‘shopping in one’s hometown’. Within this mental frame, the

salient DM prices with which one is familiar and which are closely connected to the corresponding

products constitute anchors for the price estimation process in Euros. Since the anchor values lie above

the corresponding Euro prices, higher price estimations are the consequence. If, however, an

unfamiliar mental frame is explicitly triggered, as in the ‘foreign country’ conditions of Study 5

where people were asked to make price estimations for shops in Ireland, the DM price anchors are no

longer applicable to the judgement task and, thus, are not activated and no longer influence the

judgements (cf. Mussweiler et al., 1997, Study 3; Strack & Mussweiler, 1997, Study 1). Thus, in sum

our studies highlight that anchoring effects could bias price estimations and the perception of salaries

after the introduction of the Euro in 2002.

In What Way Do Salient DM Price Anchors Bias Price Estimations in Euros?

These considerations lead to the question of how the mechanism underlying the anchoring effect of the

salient DM reference prices on price estimations in Euros works. Obviously, our studies were not

designed to allow for such a detailed micro-level analysis of cognitive processes mediating these

anchoring effects. The current state of research on anchoring (cf. Mussweiler & Strack, 1999, 2001;

Strack & Mussweiler, 1997) implies that the following process is involved: According to Mussweiler

and Strack (2000a,b), who refer to the general framework of Wyer (1973), categorical judgements

about a specific feature of an object (as, for example, the age of a particular person or, as in our case,

the price of a particular product) can be conceptualised as ‘the expected value of the distribution of

probabilities that the target belongs to each of the given scale categories’ (Mussweiler & Strack,

2000a, p. 496). Thus, people have a plausible range of prices for a given product in mind (for a

particular CD player, for example, this could be a range from 200 DM to 1000 DM), and they use their

knowledge to assign probabilities to each of the cases within this range (i.e. that this CD player will

cost 200 DM, 300 DM, 400 DM etc.). This, of course, is hardly ever conducted as a completely

conscious rational calculation, but rather as a more or less implicit inference. If an anchor within this

range is salient (such anchors are called ‘plausible anchors’, cf. Mussweiler & Strack, 2001), this

anchor leads to selective accessibility of knowledge implying that the target’s extension on the

category scale is roughly equal to this value (Mussweiler & Strack, 1999; Strack & Mussweiler,

1997).8 If in our CD player example an anchor of 300 DM is salient for a person, this person

predominantly generates knowledge about why the CD player could be so cheap. This, in turn, lowers

the person’s price estimation compared to a person without a salient anchor. The opposite happens in

the case of high anchor values. In addition, if the anchor value lies outside the plausible range of the

distribution (e.g. a numerical value of 15 DM), this mechanism is supplemented by ‘insufficient

adjustment’: In this case, people first adjust to the boundary value of the plausible price range (which

would be 200 DM in our example) and then test whether or not the price could be equal to this

boundary value (selective accessibility). Again, relatively low price estimations would be the

consequence.

8This suggests that the anchoring effect of DM prices only applies to those consumer goods for which a range of plausible valuesactually exists (cf. Mussweiler & Strack, 2000a). In the absence of such a range, as is, for example, the case for cigarette prices,we would not expect an anchoring effect to occur when prices in Euros are estimated. However, whether this is actually the caseis an open question for further empirical research.



These processes can be used to explain in what way anchoring effects might bias price estimations

in the Euro conditions. According to the view stated above, the participants have to convert their

distribution of plausible prices from DM into Euros. However, when they calculate the final Euro

prices for the products, the familiar DM prices—which lie within the upper part of this distribution or

even outside the plausible range—selectively make knowledge accessible that implies why these

products should be expensive. As a consequence, the participants estimate relatively high prices for

these products.

For the same mechanism to be able to account for the findings of Study 1, namely that people were

willing to accept more difficulties for the same real salary if it was given in DM than if it was given in

Euros, one would have to assume that for each level of difficulties (i.e. staggered increases in distance

between home and workplace), a probability distribution exists in which each salary is assigned a

probability denoting that the particular salary is an appropriate compensation for a certain level of

difficulties.9 As a response to the questionnaire item, a specific level of difficulty (i.e. a specific

distance between one’s home and one’s workplace) is chosen for which the expected value of the

particular probability distribution equals the salary offered to the participants. Due to the nominally

high reference salaries in DM, selective knowledge is generated that supports the hypothesis that a

high Euro salary is necessary to compensate for given difficulties. Because this effect works within

each single probability distribution, the subjective expected values of the distributions are artificially

heightened, which, in turn, leads to a lower level of difficulties being chosen by the participant.

However, the mechanism underlying the anchoring effects in our studies could also be a simpler

one. In the case of price estimations, people might start by making a first price estimation in DM.

The process of reaching this price estimation might be similar to the one described above (subjective

expected value of the distribution of probable prices), or the estimate might also be a more

spontaneous guess. In the DM conditions, the price estimation process has now been completed. In

the Euro conditions, participants convert this price estimation (and not the distribution) into Euros.

However, because the nominally higher DM prices are salient, the Euro price seems to be unusually

low. The participants can hardly associate the particular products with such low nominal figures. An

upward adjustment could be the consequence. In the case of salary attractiveness, the salient higher

nominal DM salaries could also make the Euro salary appear unusually low, thus implicitly decreasing

the participants’ willingness to accept long distances between home and workplace for this salary.

In the sense of the definition of anchoring as ‘the assimilation of a judgement to a salient standard of

comparison’ (Mussweiler & Strack, 2000b, p. 1038), such processes would also constitute anchoring

effects. However, they would not fit any of the two popular explanations for these effects, namely

‘selective accessibility’ and ‘insufficient adjustment’. Note that although we also spoke of ‘adjust-

ment’ in the price estimation example, this adjustment would be quite different from the one known

from the literature. Whereas ‘insufficient adjustment’ means that people start from an anchor and fail

to sufficiently adjust from the anchor towards the real value (Jacowitz & Kahneman, 1995), in our

case they would start from the real value and, due to the salience of an anchor, would be misled to

adjust their estimation towards that anchor. It could be an interesting question for further research to

clarify whether the more elaborate process from the Mussweiler and Strack (1999) model or the more

9Note that in the more simple case of people using an ‘acceptability distribution’ of different difficulties (different distancesbetween home and workplace) for a given salary—which would fit the question format more closely—and judge their accepteddifficulty as the expected value of this distribution, this approach could not explain the anchoring effect of the DM salaries.Because here the scale format is distance instead of money, the DM anchors are not applicable to this scale. In this case, the onlyway to save this explanation would be to assume that the salient DM salaries are connected with salient acceptable distances. Ifpeople are offered a salary of, for example, 60,000 Euros, the immediate reference salary is 60,000 DM. Since people aresomehow reluctant to accept large distances between workplace and home for 60,000 DM per year, these relatively lowacceptable distances would constitute the actual anchors in this judgement task and lead to relatively low estimations in the Euroconditions.



intuitive and spontaneous process described above, which we might also call a ‘contrast effect’

between Euro stimulus and DM anchor, lies at the heart of the biasing effect of DM reference values on

the perception of Euro values.

Implications and Directions for Further Research

Although we only investigated effects of the Euro on the perception of money in Germany, this does

not mean that the results necessarily can only be applied to Germany. For the citizens of other

countries joining the European monetary union, the former national currencies should also provide

anchors when perceiving prices and salaries in the new currency. With regard to these other countries,

the anchoring hypothesis even allows specific predictions to be made. Since in most countries that

participate in monetary union the conversion rate leads to smaller nominal figures in Euros compared

to their former national currency, people in these countries should exhibit the same anchoring effects

as our participants in Germany. For example, for France where the conversion rate is about 1 Euro to

6.6 French Francs, price estimations in Euros could even be exaggerated in comparison to our German

Euro conditions since the French are used to even higher nominal values. For Ireland, the opposite

effect can be assumed. Since the Irish are used to smaller numbers in their national currency

(Irish Pound) compared to the Euro, the corresponding anchoring effect should work in the opposite

direction. For people in those countries which will not be joining the monetary union at this point in

time (such as, for example, Britain), no anchoring effects should occur at all since their psycho-

logical situation should be identical to those participants in Study 5 for whom an unfamiliar mental

frame was activated: Because they do not consider the Euro as being their home currency, no

mental frame of shopping in their hometown should be triggered and, thus, no salient reference prices

in their national currency should constitute anchors for price estimations. Each of these predictions

could be easily tested and would provide further information about the appropriateness of the

anchoring explanation.

A test of this hypothesis in Italy would be of particular interest. Since the conversion rate of the

Italian Lira to the Euro is 1 Euro to 1940 Italian Lira, the Italians are familiar with nominal prices that

are extraordinarily higher than the ones in Euros. In terms of the Mussweiler and Strack (1999, 2000a,

2001) framework, the reference prices in Lira would constitute implausible anchors (they clearly lie

outside the boundaries of the distribution of plausible Euro prices); and these implausible anchors

have, in general, been shown to lead to even stronger anchoring effects than plausible anchors

(Mussweiler & Strack, 2001). According to these authors, this can be explained by postulating that

implausible anchors affect judgements by a combined strategy of selective accessibility and

insufficient adjustment, whereas plausible anchors only trigger the former mechanism. Thus,

according to this view we would expect particularly strong anchor effects among participants in Italy.

If, however, the anchoring effects of the national currency on price estimations in Euros are more or

less based on what we called a ‘contrast effect’, namely that the salient prices in the national currency

let the Euro price estimations appear unusually low and, thus, lead to an adjustment towards these

anchors, then due to the large discrepancy between the former (Lira) and the new (Euro) values we

would hardly expect that the Euro price estimations are compared to these former prices in Lira—

thus, no anchoring effects should occur. First preliminary data from a small study gave us some hints

that the latter may be the case: Whereas in a German sample the well-known Euro versus DM effect

was evident and in a British sample, as predicted, no differences in price estimations between the

British Pound and the Euro occurred, the Italian sample also showed no signs of anchoring effects.

However, before such results can be interpreted, they have to be substantiated with the use of larger

and more representative samples than the small convenience samples we used in this pilot study.



A second implication for further research that can be derived from our studies is to test how quickly

and to what extent anchoring effects of the old national currency disappear if people become more

familiar with dealing with the new currency. From January 2002 onwards when the new Euro coins

and notes enter circulation, people’s experience with the use of this currency will increase. Once

people have built up cognitive representations of typical prices in Euros, we should expect the

anchoring influence of the prices in the former familiar currency to disappear. A closely related

topic of interest is whether young people become accustomed to the Euro more quickly than older

people do. Since the older people have collected more experience with prices in DM, their cognitive

representations of consumer goods and prices should be connected more closely to the DM than those

of younger people.

Finally, we would like to emphasise that, although we did not find an association between people’s

attitudes towards the Euro and their price estimations, we do not think that the symbolic value of the

Euro and the national currencies should be neglected. On the contrary, we agree with the notion of

Burgoyne et al. (1999) that people’s reactions to the Euro probably will be very complex and that the

introduction of the Euro goes far beyond any everyday economic change. For example, even if the

perception of prices in Euros is not influenced by people’s attitude towards this currency, the actual

willingness to make payments and to spend the money probably is. Observations during the

introduction of the 1 Pound coin in Britain as well as the Dollar coin in the United States support

the prediction that behaviour towards money is affected by the money’s physical characteristics

(Webley, Lea, & Hussein, presentation at the 8th International Symposium on Economic Psychology,

Bologna, 1983). In Britain people showed strong negative reactions towards the 1 Pound coin and tried

to get rid of it as soon as they could. In the United States the Dollar coin even had to be withdrawn 1

year after its introduction because it was rejected by the public (Webley et al., 1983).

In sum, our research gives reason to doubt the assumption that the introduction of the new

banknotes and coins in the course of the monetary union in Europe has little more meaning than to

substitute one currency, as one medium of exchange, for another. As our results indicate, the

introduction of the new Euro banknotes and coins will probably cause some confusion and irritation

among the population. Consumer prices might seem unusually low possibly enticing persons to spend

more money than they actually intended. On the other hand, the amount of money people have at hand

seems to be diminished which might induce them to undertake special precautions when spending

money. Whether these effects will cancel each other out, or whether one of them will dominate and,

thereby, affect people’s consumption behaviour in general, remains an open question for further

research.

ACKNOWLEDGEMENTS

We are grateful to Claas Triebel, Verena Graupmann, Nadja Seel, Tanja Nazlic and Sonja Przybilla for

their assistance in the collection of data.

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