Tuesday, October 15, 2013

Why Things Cost $19.95 (Reprise)

A couple of years ago I blogged about research that tried to come up with an explanation for why many prices end in '99' or '95' rather than being a round number. The study found that participants guessed the wholesale price of a plasmascreen tv to be lower if the retail price was $5000 than when it was $4.888 or $5.012. Suggesting that round numbers trigger a wider frame of reference than more exact numbers. I was reminded of this research after I read about a new study that looks at the difference between round and non-round offers in negotiation situations. This study finds that second-movers make greater counteroffer adjustments to round than to precise offers. The authors argue - and provide some evidence for this - that 'precise numerical expressions imply a greater level of knowledge than round expressions and are therefore assumed by recipients to be more informative of the true value of the good being negotiated'.

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