Left digit bias
Date posted: October 28, 2011
When applied to buying, what does left-digit bias mean, and why is it important? N.C. State University economist Mike Walden explains this psychological concept.
“Simply what it means … is when you’re looking at a price — let’s take the price of a car, when you’re looking at a price of a car, the cost of a car — what people are going to focus is on that left, furthest left digit. So, if the car is $20,000 you’d focus on the 2. If it’s $30,000, you’d focus on … the 3. And so sellers know that. And that’s why sellers will often use a number like $29,999.
“You might say, ‘Well, why don’t they just round it off to $30,000. It’s because they know that people put a lot of focus on that left most digit. So, people will consider $29,999 actually to be significantly less costly than $30,000. And in fact they’ve done studies — they being the economists and statisticians and psychologists … — looking at the discount that, let’s say, a car buyer will need to buy a car that’s older, a used car that’s older. And what they find for the same age of car that the buyer needs a smaller discount, they will accept a smaller discount if that left digit changes — that is, if you go from $30,000-something down to a $29,000-something — than if you keep that left digit the same. That is, you’re talking about a discount still within the $30,000 range.
“So, this … is apparently very, very significant in consumer psychology and consumer buying. Sellers know it, and as a buyer we should know it, too, and when possible don’t just consider that left digit. Consider all the digits.”
Category: Economic Perspective