Penny Wise and Pound Foolish: The Left‐Digit Effect in Price Cognition

Through five experiments, we provide a cognitive account of when and why nine-ending prices are perceived to be smaller than a price one cent higher. First, this occurs only when the leftmost digits of the prices differ (e. g. , 2. 99 vs. 3. 00). Second, the left-digit effect also depends on the numerical and psychological dis-tances between the target price and a competing product’s price. The closer the two prices being compared, the more likely is the left-digit effect. Third, the left-digit effect is not restricted to the domain of prices; it also manifests with other multidigit numbers. Do consumers perceive a nine-ending price to be sig-nificantly lower than a price one cent higher (e. g. , 3. 99 vs. 4. 00)? This question has attracted researchers’ attention as early as 1932. Past research (Monroe 2003) and conventional wisdom suggest that consumers do not respond to very small price changes. Since nine endings change the price of a product by just one cent (e. g. , from 4. 00 to 3. 99), several early researchers were skeptical about the effects of nine endings on magnitude perceptions (Bader