It seems like people’s perceived value of currency is not just dependent on the number on the coin or it’s actual value but also their familiarity with that currency.

For the first part of their study Dr Alter and Dr Oppenheimer picked 37 “volunteers” at random from the university’s canteen. They asked them to estimate how many simple objects—gumballs, paperclips and pencils—they could purchase with either a standard dollar bill or a Susan B. Anthony dollar coin that was presented to them. Susan B. Anthony dollars are legal tender but, having been produced only from 1979-81 and then again in 1999, they are rarely seen in circulation.

…

People offered the banknote believed, on average, that they could use it to buy 83 paperclips, 72 napkins or 46 sweets. Those offered the coin thought 39 paperclips, 51 napkins or 27 sweets. In other words, the note was believed to be almost twice as valuable as the coin.

This is a really interesting psychological observation. We often associate “sentimental” value with items: for example I value my iPod much more than an identical iPod that you had with the same specifications and songs. I wonder if it’s the same reason why we believe the currency we’re familiar with is also worth more to us.

When the Euro was introduced in 2002, there were also big increases in prices as companies converted their prices to Euros and then rounded up. People didn’t really notice; they weren’t familiar with the new currency.

The UK is introducing a new set of coins later this year, for the first time in 40 years. The study implies that people will happily pay more using the new coins than the old coins for the same product. Maybe Mr Darling and Mr Brown should be keeping their eye on the Retail Price Index this year.