Nominal Illusion: A Mistake or a Choice?
When Betsey got home from her morning run earlier this week, she beamed and told me she had covered eight kilometers. And this Sunday, after running the first two hours of my long weekend run, I gritted my teeth and told myself, “only five miles to go.”
The strange thing about these observations is that I’m an Aussie, and so typically talk in kilometers, while Betsey grew up in the United States, speaking in miles.
Why did we reverse roles? It turns out we were in very different situations. When I asked Betsey about her comment she said that, ” … measuring my run in kilometers makes it sound like I ran farther.” And this seems like something we may want to do once we are done jogging. In turn, I was still running when I described the last eight kilometers as five miles, and I did this because I was trying to convince my body that it didn’t have that much further to go.
Economists have long thought about nominal illusion — the tendency for certain magnitudes to sound different when described in different units. For instance, a boss offering a two percent pay raise in a year in which inflation is six percent faces fewer protests than when cutting your wage by three percent in a year with one percent inflation. Yet the two situations are equivalent: your boss cut your real wage by four percent.
I had always thought about nominal illusion as simply being a mistake, or a math error. But what I learned when thinking about the jogging example is that sometimes we purposely manipulate the units with which we describe the world to make ourselves feel better.
But the economist in me finds it surprising that nominal illusion works. When I told myself that I had five miles left to run, I actually looked at my fancy G.P.S. watch, which told me that I had eight kilometers left to run, and then did the math to convert this to five miles. So I both knew that I had eight kilometers left, but fooled myself that it was “only” five miles.
Can we systematically fool ourselves in this manner? And if so, why can’t I use nominal illusion to make myself feel really terrific? For instance, if I convert my salary to the Laos Kip, then it sounds like I’m super-rich. But somehow my ability to harness nominal illusion around these bigger issues fails me. Each of us can fool ourselves some of the time, but why can’t we fool ourselves all the time? And why can we sustain comforting nominal illusions in some domains, but not others?