1 00:00:02,040 --> 00:00:10,000 Speaker 1: Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff, 2 00:00:10,039 --> 00:00:12,480 Speaker 1: I'm Christian Sager. So the other day I was shopping 3 00:00:12,520 --> 00:00:16,680 Speaker 1: at Bavmorda's Trebuche and Millinary Emporium, and I started wondering, 4 00:00:17,040 --> 00:00:20,040 Speaker 1: why do so many prices end in the number nine? 5 00:00:20,520 --> 00:00:23,560 Speaker 1: Don't the stores want that extra penny? You might have 6 00:00:23,600 --> 00:00:25,759 Speaker 1: wondered the same thing too, and if you have, it's 7 00:00:25,800 --> 00:00:29,760 Speaker 1: not just your imagination. Studies have shown that many retailers 8 00:00:29,840 --> 00:00:33,960 Speaker 1: disproportionately used prices within five cents of the nearest dollar, 9 00:00:34,320 --> 00:00:37,520 Speaker 1: within one cent of the nearest ten cents, within five 10 00:00:37,600 --> 00:00:41,040 Speaker 1: dollars of the nearest one hundred dollar or one thousand dollars, 11 00:00:41,440 --> 00:00:45,159 Speaker 1: and within one dollar of the nearest ten dollar amount. 12 00:00:46,120 --> 00:00:50,680 Speaker 1: Prices like this are often known as charm prices, odd prices, 13 00:00:51,360 --> 00:00:56,520 Speaker 1: magic prices, or psychological pricing. Price tags ending in the 14 00:00:56,560 --> 00:01:01,440 Speaker 1: number nine are especially common. But why these days? Two 15 00:01:01,480 --> 00:01:05,120 Speaker 1: main psychological theories of charm pricing have emerged For the 16 00:01:05,160 --> 00:01:08,679 Speaker 1: purpose of this episode. Will call them the rounding off 17 00:01:08,720 --> 00:01:12,759 Speaker 1: theory and the bargain signaling theory. The rounding off theory 18 00:01:12,880 --> 00:01:16,160 Speaker 1: states that shoppers tend to pay a lot more attention 19 00:01:16,200 --> 00:01:18,319 Speaker 1: to the first digits in a list of a price. 20 00:01:18,440 --> 00:01:21,640 Speaker 1: So when you see a product labeled twenty nine nine, 21 00:01:22,240 --> 00:01:25,600 Speaker 1: even though it's one penny off from thirty bucks, the 22 00:01:25,600 --> 00:01:28,399 Speaker 1: theory goes that you mentally round down to think of 23 00:01:28,440 --> 00:01:31,479 Speaker 1: it as a twenty dollar price point based on that 24 00:01:31,560 --> 00:01:35,760 Speaker 1: first digit. Now, the bargain signaling theory suggests that odd 25 00:01:35,800 --> 00:01:39,160 Speaker 1: prices work the same way sales signs do, meaning they 26 00:01:39,240 --> 00:01:42,920 Speaker 1: imply to shoppers that the price listed is especially good. 27 00:01:43,319 --> 00:01:47,440 Speaker 1: Maybe the weird specificity of something priced at five night 28 00:01:47,680 --> 00:01:50,560 Speaker 1: or two thirty nine makes us think that the store 29 00:01:50,720 --> 00:01:53,280 Speaker 1: is selling this bag of gummy bears at the lowest 30 00:01:53,320 --> 00:01:57,080 Speaker 1: price point they can possibly afford. Or maybe we've all 31 00:01:57,120 --> 00:02:01,280 Speaker 1: been conditioned by marketing to associate odd prices, especially the 32 00:02:01,280 --> 00:02:05,639 Speaker 1: ones ending in nines, with sales and discounts. There seems 33 00:02:05,720 --> 00:02:08,359 Speaker 1: to be some evidence for both the rounding off theory 34 00:02:08,440 --> 00:02:12,440 Speaker 1: and the bargain signaling theory. In two thousand three, researchers 35 00:02:12,480 --> 00:02:16,040 Speaker 1: showed that in some cases, you could actually increase demand 36 00:02:16,080 --> 00:02:19,040 Speaker 1: for an item by raising the price so that it 37 00:02:19,280 --> 00:02:23,280 Speaker 1: ended in a nine, which would seem to contradict rational economics. 38 00:02:23,680 --> 00:02:26,760 Speaker 1: One example, they studied a thirty four dollar dress in 39 00:02:26,800 --> 00:02:29,919 Speaker 1: a Clothing Catalog by raising the price from thirty four 40 00:02:29,960 --> 00:02:33,480 Speaker 1: dollars to thirty nine dollars. Demand for the dress actually 41 00:02:33,600 --> 00:02:37,480 Speaker 1: went up when they raised the price to forty four dollars. However, 42 00:02:37,720 --> 00:02:40,840 Speaker 1: the trend didn't hold, so it wasn't just that buyers 43 00:02:41,000 --> 00:02:44,960 Speaker 1: liked paying more for their clothes. Since thirty four and 44 00:02:45,040 --> 00:02:48,040 Speaker 1: thirty nine both start with the same digit, this would 45 00:02:48,040 --> 00:02:51,320 Speaker 1: seem to favor the bargain signaling theory rather than the 46 00:02:51,400 --> 00:02:55,080 Speaker 1: rounding off theory. Something about the nine just seemed to 47 00:02:55,160 --> 00:02:58,040 Speaker 1: make people think they were getting a good deal. But 48 00:02:58,480 --> 00:03:02,120 Speaker 1: there's evidence for the rounding off effect as well. For example, 49 00:03:02,440 --> 00:03:05,440 Speaker 1: a two thousand five study found that prices ending in 50 00:03:05,560 --> 00:03:09,960 Speaker 1: nine cents caused shoppers to make math errors that even 51 00:03:10,000 --> 00:03:13,880 Speaker 1: dollar prices did not. It worked like this test. Shoppers 52 00:03:13,880 --> 00:03:17,600 Speaker 1: were given an allowance of exactly seventy three bucks, and 53 00:03:17,639 --> 00:03:20,720 Speaker 1: they were then asked to estimate how many products they 54 00:03:20,720 --> 00:03:23,600 Speaker 1: could buy with this allowance. It turned out that when 55 00:03:24,720 --> 00:03:28,760 Speaker 1: endings were in the picture, shoppers overestimated their spending power. 56 00:03:29,280 --> 00:03:32,280 Speaker 1: In other words, they thought they could buy significantly more 57 00:03:32,280 --> 00:03:35,960 Speaker 1: products at prices like to ninety nine and five ninety 58 00:03:36,080 --> 00:03:40,040 Speaker 1: nine than they could at three dollars or six dollars. 59 00:03:40,080 --> 00:03:43,320 Speaker 1: This seems to suggest that we do tend to round 60 00:03:43,400 --> 00:03:46,720 Speaker 1: down and ignore the final digits and prices, even though 61 00:03:47,160 --> 00:03:50,320 Speaker 1: it makes no economic sense to do so. So, it 62 00:03:50,360 --> 00:03:53,320 Speaker 1: looks like our penchant for buying at the nines might 63 00:03:53,360 --> 00:03:56,800 Speaker 1: be explained by a mixture of our tendency to round 64 00:03:56,840 --> 00:04:00,560 Speaker 1: down to the leftmost digit and our beliefs at nines 65 00:04:00,840 --> 00:04:09,880 Speaker 1: inherently indicate bargains. Check out the brainstuff channel on YouTube, 66 00:04:09,960 --> 00:04:12,160 Speaker 1: and for more on this and thousands of other topics, 67 00:04:12,320 --> 00:04:27,760 Speaker 1: visit hastuff works dot com.