Round numbers bias can cost you big money

Suppose you are about to put your house on the market. Should you list it for round number, say, $250,000 or an exact amount such as $252,153?

According to a recent study, if you price it at the former you could be leaving money on the table. Manoj Thomas, Daniel H. Simon and Vrinda Kadivali of Cornell University found that we perceive round numbers as greater than exact ones of similar magnitude, and therefore assume exact numbers are a better deal.

This "precision heuristic" also discourages haggling, because buyers who perceive an exact number as a lower price presume there is less wiggle room for negotiation. The authors suggest this is a learned behavior based on the human propensity to use round figures for large quantities, so we unconsciously expect large exact numbers to have some concrete (and immutable) basis. (Car dealers use this tactic when they show you "our cost').

As part of their study, they reviewed 27,000 house sales in Florida and Long Island. Results showed that list prices ending in three or more zeros reduced the final sale price of Florida homes by .73%, with a lower by consistent result for Long Island. The results suggest that the final sales price of a house listed at $485,000 would be $1,380 less than if listed for $484,700.

My conclusion? The next time I post something for sale on Craig's List, it's going to be priced at $38.61, not $40. And if I want to buy something that is exactly priced, I won't hesitate to negotiate.

Read Full Story

From Our Partners