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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17030.
Date of creation: May 2011
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Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Economics; 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)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- 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.
- Victor Stango & Jonathan Zinman, 2011. "Limited and varying consumer attention: evidence from shocks to the salience of bank overdraft fees," Working Papers 11-17, Federal Reserve Bank of Philadelphia.
- 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.
- 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.
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