Why round numbers are costing you
99 likes on the picture you posted of your smiling kids doesn’t feel nearly as good as 100. We partied hard when the year turned 2000, but not 2001. When we turn 40 or 50 or 60, we celebrate more (or mourn deeper, depending on your outlook). We tip restaurant wait staff in whole dollar amounts more often than at an exact percentage.
Making the rounds
The lizard brain is quite fond of round numbers. It wants us to act quickly in our decision making, and round numbers are quicker and easier to calculate, remember, and adjust from. But round numbers are not always in our best interest.
(By the way, the term “round” here refers to numbers in common increments, such as those that end in 0 or 5 or do not include fractions, as with whole dollar amounts.)
Want to learn more about improving your thinking and decision making?
Consider this: when you list an item for sale you are likely to give it a nice round price – say $200 (unless you practice charmed pricing, which I discuss below).
Many studies have shown that when a seller uses a precise number, like $203.57, buyers regard this as a more accurate reflection of the item’s value. This makes them more likely to buy at or near that price than if the offer was a round number. This is a heuristic, or mental shortcut, that affects purchasing behavior.
Want to sell your house? A study of real estate sales showed that houses listed at prices ending in three or more zeros sold for less than more precisely priced listings. For example, the final sales price of a house listed at $485,000 would be $1,380 less than if listed for $484,700.
A related but contrasting bias is highlighted by the common marketing practice of pricing just below a round number – such as $19.99 or $34.95. This is known as “charmed pricing” and works because we subconsciously perceive $19.99 as significantly less than $20.00.
We put an irrational amount of importance on the left-most digit of a number rather than considering the entire amount. And even though most of us are aware of this pricing practice, it still works because it affects us at the subconscious lizard brain level.
It’s not just money where round numbers come into play. The lizard brain hears that someone is “6 feet tall” and it perceives them as much taller than someone who is 5’11. But 5’11 seems only slightly taller than 5’10”. That is why dating apps have a higher percentage of guys who claim they are 6’0” (compared to 5’11”) than there are in the general population according to real data.
Likewise, a baseball player’s batting average of .300 seems much better than .299. So at the end of the year, players try harder to get to – or not fall from – the magic of that round number.
Strategies for success
Here are a few ways to mitigate the round number bias:
Use more precise numbers when:
- setting a selling price
- negotiating. Also, remember to try to be the first to offer a number (see anchoring)
- requesting a project budget
- saving for retirement (see “How Round Number Bias Can Reduce Your Nest Egg” in the Think Links section)
From the consumer side, make an extra effort to calculate actual value if you want to make better purchasing decisions. Understand how round and non-round numbers affect us at the subconscious level. Remember, it’s okay to leave a tip of $7.46.
Just regard round numbers – and numbers that are just below round numbers - with caution. They are probably set based on our subconscious tendencies, not on actual utility or value.
And the next time someone tells you they are 6 feet tall, get out your tape measure.
Think well and be well!
- Steve Haffner