Setting prices to entice people to spend more
The left hand digit bias is a tendency for people to place more emphasis on the left hand digit in numbers. Consequently, people are inclined to instinctively recognise a bigger difference between 4.00 and 3.99 than between 3.50 and 3.49. In the first example, people instinctively recognise the difference between the digits “4” and “3” whereas in the second, the left hand digit is the same so the difference is perceived to be less.
The left hand bias is often associated with pricing goods just below a whole number, such as setting a price at 3.99 rather than 4.00. As a result, it sometimes known as the 99 price effect. Explanations of how this effect developed and how it is used in sales and promotion are outlined by author William Poundstone in an interview on American Public Media.
Left hand bias affects many markets
The left hand bias occurs because people often take short cuts – also known as rules of thumbs or heuristics - to process information quickly. A Vox EU article notes the left hand bias affects many markets. For example, the price of used cars falls noticeably when the mileage moves above each thousand miles (or kilometres). The article also notes an associated effect whereby people focus on the first price quoted and fail to take into account additional costs, such as postage and sales tax – an effect also known as “drip pricing”.
Tips to avoid the bias
The authors of the Vox EU article suggest inattention plays a part in the continuation of the bias. As a result, being aware of the way prices are set is a first step in guarding against this effect. Setting a budget when buying a product and sticking to it can also help avoid overspending when prices creep up with extra "cost drips" during the sales process.