€1 ≠ €1: Coins versus bills and people’s spending behavior

Previous research has shown that people attach a different value to exemplars of money having similar nominal values but dissimilar physical features. In particular, recent data have suggested that American people attach higher value to $1 banknotes than to $1 coins. These results have been explained in terms of familiarity since the $1 coin was introduced recently and is, therefore, less familiar than the $1 banknote. We suggest an alternative explanation based on the different mental accounts associated with the use of coins and banknotes. Experiments 1-3 show that people are willing to pay more when using coins than banknotes regardless of their familiarity with these exemplars of money. Experiment 3 also shows that people overestimate the amount of money at their disposal when they are provided with banknotes and underestimate it when using coins. Experiment 4 reveals that people using banknotes are more sensitive to discounts than people using coins. Finally, Experiment 5 indicates that people implicitly associate coins with low value products and banknotes with high value products.