The (Relative and Absolute) Subjective Value of Money

Abstract

Money is often used as a proxy for utility in economic and psychological research. Monetary sums are easily calculated and compared, and money is a stimulus with which almost all people are familiar. Even so, hedonic responses to monetary gains and losses are relatively insensitive to the absolute size of those gains and losses, and the subjective utility of gains and losses is surprisingly labile. We propose that the difficulty of evaluating the value of money stems from the abstract nature of its value and nearly infinite range. As a result, money is not evaluated on a single monetary scale, but instead on subscales composed of comparison standards that are selected at the time of judgment. Using a dual-process account, we describe how such monetary subscales are generated and when they result in more or less sensitivity to its absolute value. We identify factors that influence sensitivity to the value of money and bias its evaluation. We close with a discussion of implications for science and practice.