You choose, we deliver
If you are interested in this story, you might be interested in others from The Journal Gazette. Go to www.journalgazette.net/newsletter and pick the subjects you care most about. We'll deliver your customized daily news report at 3 a.m. Fort Wayne time, right to your email.

Business

  • OPEC seen unlikely to cut output despite oil glut
    VIENNA (AP) — OPEC oil ministers meeting in Vienna today are in a bind. Prices are plunging — and in the short term, the cartel may not be able to do much about it.
  • Toyota recalls more cars for air bag problems
    TOKYO (AP) — Toyota Motor Corp. recalled more than 40,000 vehicles in Japan today as part of a worldwide scare over defective air bags and officials are investigating a new type of air bag problem that could lead to further recalls.
  • Obama's immigration move disappoints businesses
    WASHINGTON (AP) — President Barack Obama's executive actions on immigration left out some of the business community's top priorities, disappointing business leaders who might have stepped up to defend his policies in the face of Republican
Advertisement

Every 10,000 miles dings a car by $450

– Retailers have long known that tiny changes in price can have a huge impact on consumer psychology. An item listed at $9.99 sounds a lot cheaper than one listed at $10. But does this effect ever pop up anywhere else?

In the used-car market, apparently. A new paper from the National Bureau for Economic Research finds that the price of a used car plummets by about $448 on average every time it crosses a 10,000-mile threshold on the odometer. That is fairly unexpected. A car with 29,999 miles on it is not that much less valuable than a car with 30,000 miles on it. “These changes in prices,” the authors conclude, “appear to be driven by changes in consumer perception of vehicle value.”

The research follows up on a 2011 paper that found a similar effect for wholesale car prices. In an essay on the phenomenon, the study’s co-authors chalk this up to our limited attention spans - buyers tend to focus on left-hand digits and not the right-hand digits when looking at mileage. At a glance, a car with 20,001 miles on it seems much less valuable than a car with 19,999 miles.

For the car market, at least, the aggregate impact is fairly large. In their 2011 study, Nicholas Lacetera, Devin Pope and Justin Sydnor looked at 22 million car auctions and estimated that they were mispriced by about $2.4 billion because of this right-digit bias.

It’s a minor study in the grand scheme, though the authors wonder whether similar biases might pop up in other settings, such as “hiring or admissions decisions based on GPAs and test scores, the evaluation of companies based on financial reports (e.g., revenues), the treatment of medical test results, and how the public reacts to government spending programs.”

Advertisement