Title: Cognitive Constraints on How Economic Rewards Affect Cooperation (PDF)
Authors: Ellen E. Furlong and John E. Opfer
Publisher: Psychological Science, vol. 20, no. 1
Date Published: January 2009
Understanding how the brain processes numerical information can provide valuable insights for marketers, contract negotiators, and executives. In this paper, the authors highlight an interesting quirk in human perception: People tend to value multiple-digit numbers more than numbers with fewer digits (for example, 300 cents vs. $3), even if the underlying economic value is exactly the same.
In a series of experiments, the authors asked a group of undergraduate students to engage in a test known as the Prisoner’s Dilemma, in which participants are given different rewards for working with or against other participants. When the students were offered 300 cents if they would work together, up from the original offer of 3 cents, cooperation rates went up considerably. But when the reward was increased from 3 cents to $3, despite the same increase in value, cooperation rates did not increase. Finally, supporting their hypothesis that people unconsciously put the greatest emphasis on numerical value, the researchers saw an increase in cooperation when participants were offered 300 cents, after first being offered $3.
Bottom Line: People unconsciously place more emphasis on numbers that have more digits, even when the economic value is the same or less. Executives and marketers can use this knowledge to help them create smart pricing strategies or emphasize value more effectively in marketing campaigns.
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- Michal Lev-Ram is a freelance journalist based in the San Francisco Bay area. She is a former reporter for Fortune and has covered technology and business news for Fast Company, Business 2.0, and www.CNNMoney.com, among other publications and Web sites.