Round Number Bias

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Round Number Bias

#1  Postby GT2211 » Oct 22, 2013 11:26 pm

http://conversableeconomist.blogspot.co ... umber.html
Round number bias is the human tendency to pay special attention to numbers that are "round" in some way. For example, in the June 2013 issue of the Journal of Economic Psychology (vol. 36, pp. 96-102) ,Michael Lynn, Sean Masaki Flynn, and Chelsea Helion ask "Do consumers prefer round prices? Evidence from pay-what-you-want decisions and self-pumped gasoline purchases." They find, for example, that at a gas station where you pump your own, 56% of f sales ended in .00, and an additional 7% ended in .01--which probably means that the person tried to stop at .00 and missed. They also find evidence of round-number bias in patterns of restaurant tipping and other contexts.

Another set of examples of round number bias come from Devin Pope and Uri Simonsohn in a 2011 paper that appeared in Psychological Science (22: 1, pp. 71-79): "Round Numbers as Goals: Evidence from Baseball, SAT Takers, and the Lab." They find, for example, that if you look at the batting averages of baseball players five days before the end of the season, you will see that the distribution over .298, .299, .300, and .301 is essentially even--as one would expect it to be by chance. However, at the end of the season, the share of players who hit .300 or .301 was more than double the proportion who hit .299 or .298. What happens in those last five days? They argue that batters already hitting .300 or .301 are more likely to get a day off, or to be pinch-hit for, rather than risk dropping below the round number. Conversely, those just below .300 may get some extra at-bats, or be matched against a pitcher where they are more likely to have success. Pope and Simonsohn also find that those who take the SAT test and end up with a score just below a round number--like 990 or 1090 on what used to be a 1600-point scale--are much more likely to retake the test than those who score a round number or just above. They find no evidence that this behavior makes any difference at all in actual college admissions.



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He goes on to discuss its role in finance. I thought it was an interesting discussion on research on the topic so I figured I would share it. The econ board hasn't seen as much life lately.
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Re: Round Number Bias

#2  Postby Strontium Dog » Oct 23, 2013 1:12 am

The gas station example can largely be explained away by convenience, you can pay with dollar bills without requiring or receiving change. I appreciate many people now pay by card, but I'd guess this behaviour has carried over to cashless transactions.

I do prefer round numbers though, they seem more ordered, and order appeals to me as, I imagine, it appeals to most people.
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Re: Round Number Bias

#3  Postby Thommo » Oct 23, 2013 1:18 am

You see this in cricket a lot as well, the distribution of scores on which players get out has unexpected peaks around the milestone scores of a half century, a century and so on. It doesn't seem that complicated or remarkable though, people set goals and when setting an arbitrary goal you may as well go with a round number or convention, it's easier and more convenient in a lot of cases, as Strontium Dog says above.
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