Tuesday, August 02, 2011

Why is the dollar coin unpopular?

The editors of The Economist report on a psychological study by Princeton psychology professors Adam Alter and Daniel Oppenheimer on the percieved value of coins and notes. (The article is 3 years old).
People offered the banknote believed, on average, that they could use it to buy 83 paperclips, 72 napkins or 46 sweets. Those offered the [dollar] coin thought 39 paperclips, 51 napkins or 27 sweets. In other words, the note was believed to be almost twice as valuable as the coin.
The problem with the coin is not it coin-ness, but unfamiliarity — a similar study show people undervaluing the $2 bill.

I would expect this effect to also manifest as countries change their currency, both today and in historical times.

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