Hallucinations, Irrational Market-based Currency

Money illusion is a common phenomenon in economics. The term"money illusion"was coined by John Maynard Keynes early in the twentieth century. In 1928 Irving Fisher gave the subject a thorough treatment in his book"The Money Illusion". Since then, money illusion attracted many scholars'interest and was paid more and more attention to. Since the 1970s, behavioral finance was conducted an in-depth study by economists, and they began to realize that psychological factors had important influence on money illusion. With the behavioral finance was gradually placed in a dominant position, this paper is written from the behavioral finance perspective or the irrational market perspective to reformulate the traditional economic theory -- money illusion.This paper first introduces the basic theory of money illusion, which use both the new classical economics paradigm and behavioral finance paradigm to elaborate money illusion theory and concept. In the second part it will prove the money illusion broadly exists in our economic life through some classical experiments. In the third part which is innovative, it will illustrate the reasons that money illusion exists, the issue will be discussed mainly from the perspective of behavioral finance, such as the need and motivation theory, the framing effect, heuristic methods, personality characteristics, experience and knowledge and so on to analyze money illusion. Finally, the paper illustrates the effects of money illusion especially on Chinese economy; it is the most important part of the paper in which I will use empirical analysis to support my opinion. This part will focus on the analysis of money illusion's impact on the stock market, the nominal inertia, export and import, and so on.