<p>I interpret &quot;money illusion&quot; to mean that consumers tend to falsely equate their nominal income or wealth to their objective utility level. If that is the correct interpretation, it seems to suggest that consumers might behave more like Hicksian (i.e. compensated) consumers rather than Marshallian (i.e. uncompensated) consumers, at least when it comes to consumer goods. Does this mean that the complicated &quot;wealth effects of price changes&quot; that bother general equilibrium theorists so much might actually be less problematic in reality?</p>

CC BY-SA 4.0
2024-02-12T17:00:25.617Z
There are some many ill-defined concepts in "quoted" half sentences in this question, it is nigh-on-impossible to know what you actually mean. Also, you provide no guidance on how to measure "*more accurate*" and "*less problematic*".
Giskard
CC BY-SA 4.0
2024-02-12T17:58:00.900Z
@Giskard Okay well, for example, wealth effects might lead to violations of the law of demand in general equilibrium theory. This is well known so I didn't elaborate. My point is that money illusion might prevent such violations of the law of demand, and I was asking people to comment on this possibility. I'm looking for answers from knowledgeable people, so if this is news to you you shouldn't be responding to my question anyway.
UtilityMaximiser
CC BY-SA 4.0
2024-02-12T20:38:26.397Z
You have to explain the part that you made up, as "*falsely equate their nominal income or wealth to their objective utility level*" is not a clear definition of the consumer's goal function/decision process. Maybe knowledgeable people have telepathic access to your thoughts; I don't know, I am just a simpleton :(
Giskard
<consumer-theory>
Does money illusion suggest Hicksian demand curves are more accurate?
UtilityMaximiser
# Does money illusion suggest Hicksian demand curves are more accurate?

(Asked by: username_0 on 2024-02-12)

I interpret "money illusion" to mean that consumers tend to falsely equate their nominal income or wealth to their objective utility level. If that is the correct interpretation, it seems to suggest that consumers might behave more like Hicksian (i.e. compensated) consumers rather than Marshallian (i.e. uncompensated) consumers, at least when it comes to consumer goods. Does this mean that the complicated "wealth effects of price changes" that bother general equilibrium theorists so much might actually be less problematic in reality?

**Tags:** consumer-theory

> **Comments:**
> **username_1**: There are some many ill-defined concepts in "quoted" half sentences in this question, it is nigh-on-impossible to know what you actually mean. Also, you provide no guidance on how to measure "*more accurate*" and "*less problematic*".  
> **username_0**: @username_1 Okay well, for example, wealth effects might lead to violations of the law of demand in general equilibrium theory. This is well known so I didn't elaborate. My point is that money illusion might prevent such violations of the law of demand, and I was asking people to comment on this possibility. I'm looking for answers from knowledgeable people, so if this is news to you you shouldn't be responding to my question anyway.  
> **username_1**: You have to explain the part that you made up, as "*falsely equate their nominal income or wealth to their objective utility level*" is not a clear definition of the consumer's goal function/decision process. Maybe knowledgeable people have telepathic access to your thoughts; I don't know, I am just a simpleton :(  

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