Title:
Do Consumers Perceive Precise Prices to Be Lower Than Round Prices? Evidence from Laboratory and Market Data

Authors:
Manoj Thomas, Daniel H. Simon , and Vrinda Kadiyali

Publisher:
Samuel Curtis Johnson Graduate School of Management at Cornell University, Research Paper No. 09-07

Date Published:
September 2007

In considering price tags, do consumers perceive round numbers to be larger or smaller than precise numbers of similar value? The authors examined the prices of 27,000 homes in South Florida and Long Island, N.Y., and their results showed that homes priced with a rounded number (for example, US$550,000) sold for about 0.73 percent less on average than homes with a more precise price (say, $553,505). Furthermore, the authors found that buyers perceived precise prices to be lower, and were therefore willing to pay an amount closer to the asking price than they were when the price was a round number.

Bottom Line:
People tend to perceive precise prices as less than round prices of similar value. This discovery could have significant implications for buyers, sellers, and pricing strategists in any number of industries.