Are we tricked by easy math when it comes to prices?
Consumers' judgments of the magnitude of numerical differences are influenced by the ease of mental computations. The results from a set of experiments show that ease of computation can affect judgments of the magnitude of price differences, discount magnitudes, and brand choices. Participants seem to believe that it is easier to judge the size of a larger difference than that of a smaller difference. In the absence of appropriate corrective steps, this naive belief can lead to systematic biases in judgments. For example, when presented with two pairs of numbers, participants incorrectly judged the magnitude of the difference to be smaller for pairs with difficult computations (e.g., 4.97 – 3.96, an arithmetic difference of 1.01) than for pairs with easy computations (e.g., 5.00 – 4.00, an arithmetic difference of 1.00). The effect does not manifest when judgments do not entail mental computations or when participants are made aware that the ease or difficulty is caused by computational complexity. Furthermore, this effect is mitigated when participants' prior experience is manipulated in a learning phase of the experiment. The results have implications for buyers and sellers and for understanding the role of metacognitive experiences in numerical judgments.
Source: "The Ease-of-Computation Effect: The Interplay of Metacognitive Experiences and Naive Theories in Judgments of Price Differences" from Journal of Marketing Research, Volume: 46 | Issue: 1, Cover date: February 2009
I hate "business books" but love books that tell a great story about a business. Here's a great book that tells a true story where pricing was a major issue. Here's a hell of a documentary about a business disaster.
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