Face Value Effect

Face Value Effect

Reviewed by Faisal Zaidi

The finding that people judge prices in an unfamiliar currency by the nominal number on the tag and adjust too little for the exchange rate.

What it is

In four studies reported by Raghubir and Srivastava in 2002, spending fell where foreign prices carried large numbers and rose where they carried small ones. It is drawn from work by Priya Raghubir and Joydeep Srivastava (2002).

In effect

In the article on spending abroad, it serves as the exchange-desk stage: the printed number is read before the rate is applied.

What it does not say

It describes a tendency to lean on the printed number. It does not say that people ignore exchange rates altogether, and it was reported in four studies of particular currencies.

Sources

  1. Raghubir, P., & Srivastava, J. (2002). Effect of face value on product valuation in foreign currencies. Journal of Consumer Research, 29(3), 335-347.
  2. Wertenbroch, K., Soman, D., & Chattopadhyay, A. (2007). On the perceived value of money: The reference dependence of currency numerosity effects. Journal of Consumer Research, 34(1), 1-10.