The subjective valuation of coins and bills

• DOI: http://doi.org/10.1002/cjas.1280
• Published date: 01 June 2014
• Date: 01 June 2014

The subjective valuation of coins and bills

Eric Dolansky

Brock University

Abstract

There is more to how individuals value money than just the

denomination, based on several recent research articles.

Could the very form of money, whether paper or metal, be a

basis for such subjective valuation? A theoretical explanation

based on the representativeness bias is explored and three

experimental studies are employed to investigate this question.

The results show that there is a bias in how the value of money

is assessed based on whether that money is comprised of coins

or bills. Bills are estimated to have more purchasing power

than coins for the same objects, including for a different

currency where a specif‌ic exchange rate is given. Copyright

© 2014 ASAC. Published by John Wiley & Sons, Ltd.

Keywords: subjective valuation, representativeness bias,

purchasing power, money, bias

Résumé

Plusieurs articles scientif‌iques récents révèlent que

l’évaluation de la monnaie ne repose pas uniquement sur

la dénomination. La forme de la monnaie elle-même, qu’elle

soit en billets ou en pièces, serait aussi la base d’une

évaluation subjective. Le présent article explore cette

hypothèse grâce à une explication théorique basée sur le

préjugé de la représentativité et à trois études expérimentales.

Les résultats indiquent qu’il y a un préjugé dans le mode

d’évaluation de la monnaie, selon qu’il s’agit de billets

ou de piéces. On estime que les billets ont un pouvoir

d’achat plus élevé que les pièces dans l’acquisition

d’objets identiques et de devises différentes pourtant régies

par des taux de change précis connus. Copyright © 2014

ASAC. Published by John Wiley & Sons, Ltd.

Mots-clés : évaluation subjective, préjugé de

représentativité, pouvoir d’achat, monnaie, préjugé

According to the United States government, switching

from a paper dollar bill to a dollar coin would provide a

net benef‌it of $5.5 billion over 30 years (Benincasa &

Kestenbaum, 2011). As a result, on several occasions in

the past, the United States mint has issued dollar coins, most

recently starting in 2005 with the presidential coin series.

None have proven to be very popular (Unser, 2009); in fact,

the United States treasury has amassed a total of $1.2 billion

of unwanted dollar coins, and thanks to a government

program that requires their production, there could be as

many as two billion dollar coins by 2016 (Benincasa &

Kestenbaum, 2011). What is preventing Americans from

adopting dollar coins? One potential reason could be that

people perceive the value of these coins to be less than an

equivalently valued bill. This research explores this

possibility by examining whether consumers value coins

and bills of the same denomination differently.

Canadians, on the other hand, adopted dollar coins in

1987 and have not exhibited the same long-standing

resistance, though there was opposition at the time of

introduction (Hopper, 2012). Since the launch of the

“loonie”dollar coin in Canada, the government has

minted 600 million of them, representing a marginal prof‌it

of $210 million in seigniorage compared with dollar bills

(Hopper, 2012). Demand for dollar coins is approximately

1.5 times that for dollar bills, and the increased demand

and its accompanying seigniorage money was considered

by the Canadian government at the time as a potential source

of income to pay for the 1988 Calgary Olympic games

(Hopper, 2012). This Canadian context and the resulting

increase in demand for currency is instructive as to some of

the benef‌its and barriersto the general adoption of dollar coins

in place of dollar bills. On one hand, the change results in

additional government revenues (or savings, depending on

your perspective). On the other hand, the fact that 50% more

dollar coins are needed to replace bills may be indicative of

a difference in value and use of those dollars.

Past research has found that individuals tend to exhibit

biases when valuing money, despite the explicit denomina-

tion of the coin or bill. It has been shown that individuals

value large-denomination bills more highly than an equiva-

lent amount of money presented in smaller bills (Mishra,

Mishra, & Nayakankuppam, 2006) and that more familiar

forms of money are seen as having more purchasing power

than less familiar forms (Alter & Oppenheimer, 2008). A

Please address correspondence to: Eric Dolansky, Brock University, 500

Glenridge Avenue, St. Catharines, Ontario, L2S 3A1 Canada. Email:

edolansky@brocku.ca

Canadian Journal of Administrative Sciences

Revue canadienne des sciences de l’administration

31:78–89 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/CJAS.1280

Can J Adm Sci

31(2), 78–89 (2014)Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd. 78