Advanced Search
MyIDEAS: Login to save this paper or follow this series

Heuristic Thinking and Limited Attention in the Car Market

Contents:

Author Info

  • Justin R. Sydnor

    (University of Wisconsin)

  • Devin G. Pope

    (University of Chicago)

  • Nicola Lacetera

    (University of Toronto)

Abstract

Can 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 market settings with large stakes and where information is easy to observe.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 105.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:105

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Raj Chetty, 2009. "The Simple Economics of Salience and Taxation," NBER Working Papers 15246, National Bureau of Economic Research, Inc.
  2. Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc.
  3. Stefano DellaVigna & John A. List & Ulrike Malmendier, 2009. "Testing for Altruism and Social Pressure in Charitable Giving," NBER Working Papers 15629, National Bureau of Economic Research, Inc.
  4. Kaushik Basu, 2006. "Consumer Cognition and Pricing in the Nines in Oligopolistic Markets," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 125-141, 03.
  5. Shleifer, Andrei & Mullainathan, Sendhil & Schwartzstein, Joshua, 2008. "Coarse Thinking and Persuasion," Scholarly Articles 11022284, Harvard University Department of Economics.
  6. Hirshleifer, David & Lim, Sonya Seongyeon & Teoh, Siew Hong, 2006. "Driven to distraction: Extraneous events and underreaction to earnings news," MPRA Paper 3110, University Library of Munich, Germany, revised 16 Apr 2007.
  7. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
  8. Pope, Devin G., 2009. "Reacting to rankings: Evidence from "America's Best Hospitals"," Journal of Health Economics, Elsevier, Elsevier, vol. 28(6), pages 1154-1165, December.
  9. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
  10. repec:feb:framed:0087 is not listed on IDEAS
  11. Amy Finkelstein, 2009. "E-ZTAX: Tax Salience and Tax Rates," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 124(3), pages 969-1010, August.
  12. Jennifer Brown & Tanjim Hossain & John Morgan, 2010. "Shrouded Attributes and Information Suppression: Evidence from the Field," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(2), pages 859-876, May.
  13. Stefano Dellavigna & Joshua M. Pollet, 2009. "Investor Inattention and Friday Earnings Announcements," Journal of Finance, American Finance Association, American Finance Association, vol. 64(2), pages 709-749, 04.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. When driving a mile can cost you $448
    by Brad Plumer in Ezra Klein's Wonkblog on 2013-02-25 21:03:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Gillingham, Kenneth & Palmer, Karen, 2013. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Discussion Papers, Resources For the Future dp-13-02-rev, Resources For the Future.
  2. Alasdair Brown & Fuyu Yang, 2013. "Limited Cognition and Clustered Asset Prices," University of East Anglia Applied and Financial Economics Working Paper Series, School of Economics, University of East Anglia, Norwich, UK. 054, School of Economics, University of East Anglia, Norwich, UK..
  3. 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.
  4. 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).
  5. Franz Hackl & Michael E. Kummer & Rudolf Winter-Ebmer, 2010. "99 cent: Price Points in E-Commerce," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2010-02, Department of Economics, Johannes Kepler University Linz, Austria.
  6. Meghan R. Busse & Nicola Lacetera & Devin G. Pope & Jorge Silva-Risso & Justin R. Sydnor, 2013. "Estimating the Effect of Salience in Wholesale and Retail Car Markets," NBER Working Papers 18820, National Bureau of Economic Research, Inc.
  7. Eun-Ju Lee & Gusang Kwon & Hyun Shin & Seungeun Yang & Sukhan Lee & Minah Suh, 2014. "The Spell of Green: Can Frontal EEG Activations Identify Green Consumers?," Journal of Business Ethics, Springer, Springer, vol. 122(3), pages 511-521, July.
  8. 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, Society for Judgment and Decision Making, vol. 8(3), pages 365-371, May.
  9. Engström, Per & Forsell, Eskil, 2013. "Demand effects of consumers’ stated and revealed preferences," Working Paper Series, Uppsala University, Department of Economics 2013:6, Uppsala University, Department of Economics.
  10. Lin, C.-Y. Cynthia & Muehlegger, Erich J., 2013. "On the use of heuristics to approximate competitors’ private information," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 86(C), pages 10-23.
  11. Silvia Prina & Heather Royer, 2013. "The Importance of Parental Knowledge and Social Norms: Evidence from Weight Report Cards in Mexico," NBER Working Papers 19344, National Bureau of Economic Research, Inc.
  12. Keith M Marzilli Ericson & Amanda Starc, 2013. "How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 19527, National Bureau of Economic Research, Inc.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Heuristic Thinking and Limited Attention in the Car Market (AER 2012) in ReplicationWiki

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:sed011:105. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.