$1 coin worth less than paper dollar

Recent research by two psychologists from Princeton, Adam Alter and Daniel Oppenheimer, confirms what I discovered on my trips to foreign lands; our perception of the value of currency depends on its familiarity. Most interestingly, though, for their research they chose two forms of the U.S. dollar, paper and coin.

The two first quizzed subjects about how familiar they were with each object. These subjects were then offered a dollar bill or coin and asked to estimate how many paperclips, napkins or sweets they thought they could buy with the dollar.

Those given the more familiar dollar bill estimated they could buy almost twice as much as those given the coin. The same study was repeated using two one-dollar bills vs. one two-dollar bill (yes, such a thing does exist). Again, the more familiar money was thought to have more purchasing power.

At its most fundemental level, a dollar is worth what we believe it's worth, plus the value of the paper. This study suggests that until we are as familiar with a dollar coin as we are a paper one, it will be of less value. It also makes one's wallet annoyingly lumpy.

Think about this the next time you swap greenbacks for Euros, and be careful not to underestimate the value of the unfamiliar currency. Keep a pocket calculator handy to doublecheck your instincts.

Thanks, Economist

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