Quick, which is smaller: 298,548 or 298,000? If you picked 298,548, you're not alone. That's the ol' precision heuristic in price magnitude judgments doing its thing.
A recent study from Cornell University suggests that because we tend to use precise numbers for small amounts and round off very large numbers (lots of zeros), sellers can actually con consumers into thinking a price is smaller than it is by replacing those zeros with other digits.
To prove this point, the authors gathered a bunch of people together and then flashed some house listings with various prices in front of them. They then asked their subjects which prices seemed high or low and found that very precise prices, like $391,534, were actually seen as cheaper than round ones like $390,000. Intrigued, the authors when out to look for more evidence of this warped magnitude effect. After examining 27,000 real-estate transactions, they discovered that having at least one zero at the end of the list price lowered the final sale price by about 0.72 percent compared with houses listed at a similar price. Three zeros lowered it by 0.73 percent. And each additional zero lowered it another 0.39 percent.
The lesson? Whether you're selling your house or pawning something off on Craigslist, the more precise the price, the better the deal you're likely to get.
[Via the Atlantic.com]
