A qualitative analysis of individuals' perceptions of money illusion during inflationary periods

The concept of money illusion was introduced into the economics literature approximately a hundred years ago by American neoclassical economist Irving Fisher (1867-1947). Although many theoretical and experimental studies have been conducted on money illusion, and various approaches have been proposed, the theories on this subject are far from reaching a consensus. Today, especially behavioral economists attempt to explain the phenomenon of money illusion through experimental studies, viewing it as a violation of the rationality assumption or as an example of bounded rationality in economic tradition. The main reason for the emergence of money illusion, according to the economic theories that support its existence, is that individuals tend to think in nominal rather than real terms when it comes to economic matters. The aim of this thesis is to determine whether individuals fall into the money illusion in a high inflation environment and to explore whether people living in such an economy are able to distinguish between nominal and real values. According to the findings of in-depth interviews conducted with 20 participants, it was found that in Turkey, an economy with high inflation rates in recent years, almost all of the participants were able to perceive the difference between nominal and real values and did not fall into the money illusion.