How does the perceived value of a medium of exchange depend on its set of possible uses?
The normative value of a medium of exchange is derived from the best consumption that it permits. Adding potential uses can increase the normative value of a medium of exchange but not decrease it. In two large preregistered experiments (total N = 2205), including one with incentive-compatible measures, we find that the perceived value of a medium of exchange systematically lies below this normative benchmark, such that adding a less-attractive set of potential uses decreases a medium of exchange's perceived value. Moreover, the extent of undervaluation depends on the difference in value between the potential uses, and there is no evidence of undervaluation when preferences among potential uses are articulated in advance. More generally, these findings reveal that the perceived value of a medium of exchange depends not only on the expected value of the best alternative but also on the set of alternatives.
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