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D2b Left-digit Bias and Inattention in Retail Purchases: Evidence From a Field Experiment
Short Description
Chetty et al. (2009) find that posting tax-inclusive prices reduces demand by about 8%; in other words, consumers perceive tax salience as a price increase. Using data from their unique experiment, I test whether consumers display inattention to the decimal digits of the price—i.e., left-digit bias. I compare the change in demand for products for which the left-most digits, i.e., the dollar value, in their pre-tax and tax-inclusive prices are different and products for which they are the same. Even though the tax rate is the same for all products (7.375%), I find that the sales of products in which tax salience shifts the left-most digit upwards decrease by more than 10%. In contrast, the sales of products in which tax salience does not shift the left-most digit upwards decrease by less than 2%. This study presents evidence of left-digit bias from a quasi-random experiment, which also suggests that this is a channel through which tax salience affects consumers' decisions.
Type of presentation
Accepted Oral Presentation