ABSTRACT
This chapter elaborates more thoroughly on the role of behavioral economics with regard to the resurrection of money illusion. Generally, economists suppose that individual effects of money illusion cancel out at the aggregate level. The chapter expresses that this presumption might not necessarily be true and money illusion under certain conditions might have considerable implications at the aggregate level in terms of the non-neutrality of money. Fairness significantly affects the behavior of individuals. Most of the economic transactions are framed in nominal terms, which causes nominal representation to be a natural representation for most people. Due to people's salient and simplistic decision-making, and their tendency to perceive nominal values without consideration of real ones, money illusion might be elicited. Indirect channels of psychological judgment biases such as mental accounting and cognitive dissonance, however, might generate a counter-force, making subjects more prone to overlook inflationary effects as suggested also by Brunnermeier and Julliard.
