Price Rounding Effect

Description

We have a tendency to round prices, changing them to a nearby boundaries. In this, we may:

Round up: So 14 and 19 are both rounded up to 20.

Round down: So 21 and 26 are both rounded down to 20.

Round off: So 24 rounds down to 20, but 26 rounds up to 30.

Rounding can be affected by the value of monetary coins or notes, for example $26 may be rounded to $20 as there is a $20 bill but not a $30 bill.

Example

A store does a test price increase of a product from $21 to $24. Sales do not change much, indicating that the price is being rounded to $20. When they raise the price again to $26, sales do drop, suggesting a rounding off effect.

A bar that sells a drink at $4.10 often finds people paying with $5 and leaving the rest as a tip, suggesting a rounding up effect.

Discussion

This rounding effect can vary with individuals and situations, including where other factors, such as tipping, influence how the price is rounded.

Rounding can conflict with effects such as first digit anchoring, and may be combined with it, for example where rounding down may be driven by the first digit anchor.

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Price Rounding Effect

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Disciplines

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Explanations

Theories

And