How Lockdowns and Legalization Are Changing Marijuana
October 26, 2020
Looking at Our Restaurant Anxiety
October 29, 2020
Sometimes how people see a number can matter more than they might realize.
Where are we going? To the supermarket and the SAT exam.
Left-Digit Bias
Researchers believe that we care more about digits that are placed to the left than what we see on the right side.
The Supermarket
When asked, people perceive a smaller decrease when the price of plum jam falls from $4.01 to $3.00 than from $4.00 to $2.99. For both the difference is $1.01. However, because of left-digit bias, we first were comparing $4.00 to $3.00 and then $4.00 to $2.00.
Below, the change (on the left) is called a stimulus-based reference because the retailer noted the two prices that would create left-digit bias. However, when a shopper sees no comparison, he perceives less of a bargain:
The SAT
Between 2006 and 2014, approximately 54 percent of the high school students who took the SAT exam became re-takers. While there are many reasons to redo a test, researchers believe that left-digit bias is one of them. Looking at millions of test scores, they concluded that there are more re-takers for results that are just below multiples of 100. In other words scores of 1990 had disproportionally more retakes than 2000. And for higher scores the rates went up. Students with a 2300 were 11% less likely to re-take the test than those at 2290. (At the time, SAT scores ranged from 600 to 2400.)
I pointed the black arrow at the dot showing the graph’s highest retake rate at 1990, 10 points below a multiple of 100. Then the rate drops precipitously:
Our Bottom Line: The Law of Demand
The law of demand tells us that as price decreases we want a larger quantity of a good or service. Correspondingly, a price uptick means we want less. The result is a downward sloping demand curve.
As always, though, it is not quite that simple. Our left-digit bias can distort our perception of a price decrease. Returning to our $4.01/$3.00 and $4.00/$2.99, we could have a very different change in our quantity demanded for the same $1.01 drop.
Sort of similarly, because of our left-digit bias, we might retake the SAT.
My sources and more: Yesterday, WSJ introduced me to left-digit bias and these papers, here and here. From there, I discovered the SAT connection through this research and Quartz.
