Effect of Face Value on Product Valuation in Foreign Currencies

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Abstract
This article examines systematic differences in people's spending behavior when using foreign currencies. Rather than overspend or underspend in general, we show that individuals' valuation of a product in an unfamiliar foreign currency is biased toward its nominal value—its face value—with inadequate adjustment for the exchange rate. This leads to underspending when the face value of a foreign currency is a multiple of an equivalent unit of a home currency (e.g., 4 Malaysian ringgits = 1 U.S. dollar) and overspending when it is a fraction (e.g., .4 Bahraini dinar = 1 U.S. dollar). Four studies demonstrate the robustness of the face value effect across different currencies, exchange rate frames, and with samples from two countries, and two studies show that ability-related factors such as time pressure and experience moderate the face value effect. The article concludes by discussing the theoretical implications of the findings.