Do Consumers Perceive Precise Prices to Be Lower Than Round Prices? Evidence From Laboratory and Market Data

Manoj Thomas, Cornell University, USA
Daniel Simon, Cornell University, USA
Vrinda Kadiyali, Cornell University, USA
Does roundness of prices bias magnitude judgments? If so, do these biased judgments affect buyer behavior? Building on evidence of greater prevalence of precision in smaller than in larger numbers (Dehaene and Mehler 1992), we suggest that people use precision as a heuristic cue for smaller magnitudes. We term this the “precision heuristic” in price magnitude judgments. Across four studies, we find that precision or roundness of prices influence participants’ judgments of the magnitude of a price. For example, participants in our experiments incorrectly judged $395,425 to be smaller than $395,000. We also analyze data from more than 27,000 residential real estate transactions in two separate markets and find that buyers pay higher sale prices when list prices are more precise.
[ to cite ]:
Manoj Thomas, Daniel Simon, and Vrinda Kadiyali (2009) ,"Do Consumers Perceive Precise Prices to Be Lower Than Round Prices? Evidence From Laboratory and Market Data", in NA - Advances in Consumer Research Volume 36, eds. Ann L. McGill and Sharon Shavitt, Duluth, MN : Association for Consumer Research, Pages: 184-187.