From AMS Glossary
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The moon seen near the horizon appears larger than the moon seen high in the sky.
This difference is illusory, for there is no difference in the angular widths of moon from one situation to the other. (There is normally a small difference in the angular heights of the moon due to refraction in the atmosphere, but this serves to lessen the height on the horizon rather than increase it). Yet the illusion is sufficiently compelling to cause most observers to be convinced that the moon actually has a significantly larger angular size when near the horizon, and that this has a physical origin in the optics of the atmosphere. But the phenomenon is perceptual and its explanation lies in the realm of psychology. No single explanation has been found that accounts for all aspects of what people claim to see. One explanation that accounts for some aspects of the phenomenon does relate to meteorological optics. The clear sky is not perceived to be a hemisphere, but a variety of shapes, for example, a flattened dome; the horizon being seen as significantly farther from the observer than the zenith. Further, the moon appears to be pasted on the horizon and so shares its distance. The perceptual phenomenon of size constancy will then cause something of fixed angular size but apparently varying in distance to appear larger at the greater distance of the horizon. Suffice it to say that there are aspects of the illusion that are consistent with this explanation and others that are at variance with it.
Hershenson, M., Ed. 1989. The Moon Illusion. Laurence Erlbaum Associates, Publisher, Hillsdale, New Jersey, . 421 pp.
Neuberger, H. 1957. Introduction to Physical Meteorology. Pennsylvania State University, . 149–157.