Heuristic Thinking and Limited Attention in the Car Market
AbstractCan heuristic information processing affect important product markets? We explore whether the tendency to focus on the left-most digit of a number affects how used car buyers incorporate odometer values in their purchase decisions. Analyzing over 22 million wholesale used-car transactions, we find substantial evidence of this left-digit bias; there are large and discontinuous drops in sale prices at 10,000-mile thresholds in odometer mileage, along with smaller drops at 1,000-mile thresholds. We obtain estimates for the inattention parameter in a simple model of this left-digit bias. We also investigate whether this heuristic behavior is primarily attributable to the final used-car customers or the used-car salesmen who buy cars in the wholesale market. The evidence is most consistent with partial inattention by final customers. We discuss the significance of these results for the literature on inattention and point to other market settings where this type of heuristic thinking may be important. Our results suggest that information-processing heuristics may be important even in markets with large stakes and where information is easy to observe.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17030.
Date of creation: May 2011
Date of revision:
Note: IO PR
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Nicola Lacetera & Devin G. Pope & Justin R. Sydnor, 2012. "Heuristic Thinking and Limited Attention in the Car Market," American Economic Review, American Economic Association, vol. 102(5), pages 2206-36, August.
- Justin R. Sydnor & Devin G. Pope & Nicola Lacetera, 2011. "Heuristic Thinking and Limited Attention in the Car Market," 2011 Meeting Papers 105, Society for Economic Dynamics.
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-14 (All new papers)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Englmaier, Florian & Roider, Andreas & Sunde, Uwe, 2012.
"The Role of Salience in Performance Schemes: Evidence from a Field Experiment,"
CEPR Discussion Papers
8921, C.E.P.R. Discussion Papers.
- Englmaier, Florian & Roider, Andreas & Sunde, Uwe, 2012. "The Role of Salience in Performance Schemes: Evidence from a Field Experiment," IZA Discussion Papers 6448, Institute for the Study of Labor (IZA).
- Florian Englmaier & Andreas Roider & Uwe Sunde, 2012. "The Role of Salience in Performance Schemes: Evidence from a Field Experiment," CESifo Working Paper Series 3771, CESifo Group Munich.
- Asmus Leth Olsen, 2013. "Leftmost-digit-bias in an enumerated public sector? An experiment on citizens' judgment of performance information," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(3), pages 365-371, May.
- Victor Stango & Jonathan Zinman, 2011.
"Limited and varying consumer attention: evidence from shocks to the salience of bank overdraft fees,"
11-17, Federal Reserve Bank of Philadelphia.
- Victor Stango & Jonathan Zinman, 2011. "Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Bank Overdraft Fees," NBER Working Papers 17028, National Bureau of Economic Research, Inc.
- Alasdair Brown & Fuyu Yang, 2013. "Limited Cognition and Clustered Asset Prices," University of East Anglia Applied and Financial Economics Working Paper Series 054, School of Economics, University of East Anglia, Norwich, UK..
- Engström, Per & Forsell, Eskil, 2013. "Demand effects of consumers’ stated and revealed preferences," Working Paper Series 2013:6, Uppsala University, Department of Economics.
- Gillingham, Kenneth & Palmer, Karen, 2013.
"Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence,"
dp-13-02-rev, Resources For the Future.
- Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.