The Left-Digit Bias: When and Why Are Consumers Penny Wise and Pound Foolish?

Abstract

Consumers’ price evaluations are influenced by the left-digit bias, wherein consumers judge the difference between $4.00 and $2.99 to be larger than that between $4.01 and $3.00, even though the numeric differences are identical. This research examines when and why consumers are more likely to fall prey to the left-digit bias. The authors propose that the left-digit bias is stronger in stimulus-based price evaluations, wherein people see the focal price and the reference price side by side, and weaker in memory-based price evaluations, wherein people have to retrieve at least one price from memory. This is because in stimulus-based price evaluations, people tend to rely on perceptual representations of prices without rounding them. In memory-based price evaluations, they rely more on conceptual representations, which makes them more likely to round the prices. Results from six studies—five experiments and a scanner panel study—support the hypothesis that the left-digit bias is stronger in stimulus-based evaluations. These results inform managers about when to use left-digit pricing and characterize fundamental differences between stimulus-based and memory-based evaluations.