Money Illusion
Price Illusion
The tendency of people to think of currency in nominal, rather than real, terms. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value) at a previous point in the general price level (in the past).
Origin
American economist Irving Fisher coined the term in his 1928 book The Money Illusion, defining it as "failure to perceive that the dollar expands or shrinks in value." Fisher argued this cognitive bias drove business cycles—rising nominal interest rates during inflation fooled lenders into increasing savings despite falling real returns. The concept remains fundamental to understanding inflation psychology and behavioral economics, explaining wage resistance and consumer confusion.