Prices are encoded from the leftmost digit, so 3.99 registers as materially cheaper than 4.00.
Thomas and Morwitz's 1997 finding. The effect is in the encoding, not the arithmetic — $3.99 and $4.00 differ by a cent and register as differing by a dollar.
In practice
- A subscription at £9.99 is perceived as materially cheaper than £10.00, though the difference will never be noticed on a statement.
- A house listed at £499,000 draws searches that £500,000 does not, and the search filter is doing the work.
- Subject
- Economics & Incentives
- Essay
- The regularities money obeys