Editing Psychological pricing (section)

== Theories ==
[[Kaushik Basu]] used [[game theory]] in 1997 to argue that rational consumers value their own time and effort in calculation. Such consumers process the price from left to right and tend to mentally replace the last two digits of the price with an estimate of the mean "cent component" of all goods in the marketplace. In a sufficiently large marketplace, this implies that any individual seller can charge the largest possible "cent component" (99¢) without significantly affecting the average of cent components and without changing customer behavior.<ref>{{cite journal|doi=10.1016/S0165-1765(97)00009-8|title=Why are so many goods priced to end in nine? And why this practice hurts the producers|journal=Economics Letters|volume=54|pages=41–44|year=1997|last1=Basu|first1=Kaushik|doi-access=free}}</ref> Ruffle and Shtudiner's (2006) laboratory test shows considerable support for Basu's 99-cent pricing equilibrium, particularly when other sellers' prices are observable.<ref>{{cite journal | last1 = Ruffle | first1 = B. J. | last2 = Shtudiner | first2 = Z. | year = 2006 | title = 99: Are Retailers Best Responding to Rational Consumers? | journal = Experimental Evidence. Managerial and Decision Economics | volume = 27 | issue = 6| pages = 459–475 | doi=10.1002/mde.1282| citeseerx = 10.1.1.641.98 }}</ref>

The introduction of the [[euro]] in 2002, with its various exchange rates, distorted existing nominal price patterns while at the same time retaining real prices. A European wide study (el Sehity, Hoelzl and Kirchler, 2005) investigated consumer price digits before and after the euro introduction for price adjustments. The research showed a clear trend towards psychological pricing after the transition. Further, [[Benford's Law]] as a benchmark for the investigation of price digits was successfully introduced into the context of pricing. The importance of this benchmark for detecting irregularities in prices was demonstrated and with it a clear trend towards psychological pricing after the nominal shock of the euro introduction.<ref>{{cite journal | last1 = El Sehity | first1 = T. | last2 = Hoelzl | first2 = E. | last3 = Kirchler | first3 = E. | year = 2005 | title = Price developments after a nominal shock: Benford's Law and psychological pricing after the euro introduction | journal = International Journal of Research in Marketing | volume = 22 | issue = 4| pages = 471–480 | doi=10.1016/j.ijresmar.2005.09.002| s2cid = 154273305 }}</ref>

Another phenomenon noted by economists is that a [[price point]] for a product (such as $4.99) remains stable for a long period of time, with companies slowly reducing the ''quantity'' of product in the package until consumers begin to notice. At this time, the price will increase marginally (to $5.05) and then within an exceptionally short time will increase to the next price point ($5.99, for example).<ref>''[[Choice (Australian magazine)|Choice]]'', January 2009</ref>{{Full citation needed|date=August 2016}}

Several studies have shown that when prices are presented to a prospect in descending order (versus ascending order), positive effects for the seller result, mainly a willingness to pay a higher price, higher perceptions of value, and higher probability of purchase. The reason for this is that when presented in the former, the higher price serves as a reference point, and the lower prices are perceived favorably as a result.<ref>Bennett, P., Brennan, M., Kearns, Z. (2003). Psychological aspects of price: An empirical test of order and range effects. ''Marketing Bulletin'' 2003; (14), Research note 1. pp. 1-2.  [http://marketing-bulletin.massey.ac.nz/V14/MB_V14_N1_Bennett.pdf PDF] {{ISSN|1176-645X}}</ref>

===In consumer behavior===
Thomas and Morwitz (2005) suggested that this bias is a manifestation of the pervasive anchoring heuristic in multi-digit comparisons. (The anchoring heuristic is one of the heuristics identified by Nobel laureate Kahneman and his co-author Tversky.) Judgments of numerical differences are anchored on leftmost digits, causing a bias in relative magnitude judgments.<ref>{{cite journal|last1=Thomas|first1=Manoj|last2=Morwitz|first2=Vicki|volume=32|issue=1|date=June 2005|title=Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition|journal=Journal of Consumer Research|pages=55–64|doi=10.1086/429600 |citeseerx=10.1.1.519.6272}}</ref> This hypothesis suggests that people perceive the difference between 1.99 and 3.00 to be closer to 2 than to 1 because their judgments are anchored on the leftmost digit.

Stiving and Winer (1997) examined the left-digit effect using scanner panel models. They proposed that 9-ending prices can influence consumer behavior through two distinct processes: image effects and level effects. Image effect suggests that 99-ending prices are associated with images of sales promotions. Level effect captures the magnitude underestimation caused by anchoring on the leftmost digits of prices. Their results suggest that both of these effects account for the influence of 9-ending prices in grocery stores.<ref>{{Cite journal|doi = 10.1086/209493|title = An Empirical Analysis of Price Endings with Scanner Data|year = 1997|last1 = Stiving|first1 = Mark|last2 = Winer|first2 = Russell S.|journal = Journal of Consumer Research|volume = 24|pages = 57–67}}</ref> Manning and Sprott (2009) demonstrated that left-digit anchoring can influence [[consumer choice]]s using experimental studies.<ref name=":0" />

Choi, Lee, and Ji (2012) examined the interactive effects of 9-ending prices and message framing in advertisements. The researchers found that when pairing nine-ending prices with positive messages, advertisements were much more positively received by consumers. This in turn increased their likelihood of making a purchase decision.<ref>{{Cite journal|doi=10.1007/s11002-012-9164-7|title=What type of framing message is more appropriate with nine-ending pricing?|year=2012|last1=Choi|first1=Jungsil|last2=Lee|first2=Kiljae|last3=Ji|first3=Yong-Yeon|journal=Marketing Letters|volume=23|issue=3|pages=603–614|s2cid=168043081|url=https://engagedscholarship.csuohio.edu/cgi/viewcontent.cgi?article=1112&context=bus_facpub|url-access=subscription}}</ref>

===In financial markets===
Left-digit effect has also been shown to influence stock-market transactions. Bhattacharya, Holden, and Jacobsen (2011) examined the left-digit effect in stock market transactions. They found that there was excess buying at just-below prices ($1.99) versus round numbers ($2.00) right above them. This discrepancy in buy-sell can lead to significant changes in 24-hour returns that can meaningfully impact markets.<ref>Bhattacharya, Utpal and Holden, Craig W. and Jacobsen, Stacey E., Penny Wise, Dollar Foolish: Buy-Sell Imbalances On and Around Round Numbers (30 March 2011). Management Science 15, 413-431, 2012.. Available at SSRN: https://ssrn.com/abstract=1569922</ref>

===In public policy===
Research has also found psychological pricing relevant to the study of politics and public policy.<ref>{{cite journal|last1=Ashworth|first1=J.|last2=Heyndels|first2=B.|last3=Smolders|first3=C.|year=2003|title=Psychological taxing in Flemish municipalities|journal=Journal of Economic Psychology|volume=24|issue=6|pages=741–762|doi=10.1016/j.joep.2003.06.002}}</ref> For instance, a study of Danish municipal income taxes found evidence of "odd taxation" as tax rates with a nine-ending were found to be over-represented compared to other ending digits.<ref>{{cite journal|last1=Olsen|first1=A. L.|year=2013|title=The politics of digits: evidence of odd taxation|journal=Public Choice|volume=154|issue=1–2|pages=59–73|doi=10.1007/s11127-011-9807-x|s2cid=154232495}}</ref> Further, it was found that citizens' evaluations of public-school districts in a Danish population changed noticeably based on the leftmost digit. In particular, the researchers looked at minuscule changes in average grades that shifted the leftmost digit. Once this value changed, citizens responded more drastically and as such their stance in terms of public policy on the issue changed.<ref>Olsen, A. L. (2013). Leftmost-digit-bias in an enumerated public sector? An experiment on citizens' judgment of performance information. Judgment and Decision Making, 8(3), 365–371.</ref>

MacKillop ''et al.'' (2014) looked at how the left-digit effect affects the relationship between price hikes and smoking cessation.  There was a very clearly demonstrated inverse relationship between the price of cigarettes and individual's motivation to smoke.  Researchers found that price hikes that impacted the leftmost digit in the price (i.e. $4.99 vs. $5.00) were particularly effective in causing change among adult smokers.  These findings can be utilized by public policy researchers and legislators to implement more effective cigarette tax policies.<ref>{{Cite journal|first1=James|last1=MacKillop|first2=Michael T.|last2=Amlung|first3=Ashley|last3=Blackburn|first4=James G.|last4=Murphy|first5=Maureen|last5=Carrigan|first6=Matthew J.|last6=Carpenter|first7=Frank|last7=Chaloupka |title=Left-digit price effects on smoking cessation motivation|url=https://tobaccocontrol.bmj.com/content/23/6/501|journal= Tobacco Control|date=13 July 2013|volume=23|issue=6|pages=501–506|doi=10.1136/tobaccocontrol-2012-050943|pmid=23868397|pmc=9848773 |s2cid=9734003}}</ref>