BrainStuff Classics: Why Do So Many Price Tags End in .99?

for you. Hey, brain Stuff, I'm Christian Sager. So the other day I was shopping at Bavmorda's trebuche In Millinery emporium, and I started wondering, why do so many prices end in the number nine? Don't the stores want that extra penny? You might have wondered the same thing too, and if

you have, it's not just your imagination. Studies have shown that many retailers disproportionately used prices within five cents of the nearest dollar, within one cent of the nearest ten cents, within five dollars of the nearest one dollar or one thousand dollars, and within one dollar of the nearest ten dollar amount. Prices like this are often known as charm prices,

odd prices, magic prices, or psychological pricing. Price tags ending in the number nine are especially common, but why these days? Two main psychological theories of charm pricing have emerged for the purpose of this episode. Will call them the rounding off theory and the bargain signaling theory. The rounding off theory states that shoppers tend to pay a lot more attention to the first digits in a list of a price.

So when you see a product labeled twenty nine, even though it's one penny off from thirty bucks, the theory goes that you mentally round down to think of it as a twenty dollar price point based on that first digit. Now, the bargain signaling theory suggests that odd prices work the same way sales signs do, meaning they imply to shop

bors that the price listed is especially good. Maybe the weird specificity of something priced at five or two thirty nine makes us think that the store is selling this bag of gummy bears at the lowest price point that can possibly afford. Or maybe we've all been conditioned by marketing to associate odd prices, especially the ones ending in nines, with sales and discounts. There seems to be some evidence for both the rounding off theory and the bargain signaling theory.

In two thousand three, researchers showed that in some cases, you could actually increase demand for an item by raising the price so that it ended in a nine, which would seem to contradict rational economics. One example, they studied a thirty four dollar dress in a clothing catalog by raising the price from thirty four dollars to thirty nine dollars. Demand for the dress actually went up when they raised

the price to forty four dollars. However, the trend didn't hold, so it wasn't us that buyers liked paying more for their clothes. Since thirty four and thirty nine both start with the same digit, this would seem to favor the bargain signaling theory rather than the rounding off theory. Something about the nine just seemed to make people think they were getting a good deal. But there's evidence for the

rounding off effect as well. For example, a two thousand five study found that prices ending in nine cents caused shoppers to make math errors that even dollar prices did not. It worked like this test. Shoppers were given an allowance of exactly seventy three bucks, and they were then asked to estimate how many products they could buy with this allowance. It turned out that when endings were in the picture,

shoppers overestimated their spending power. In other words, they thought they could buy significantly more products at prices like two ninety nine and five ninety nine than they could at three dollars or six dollars. This seems to suggest that we do tend to round down and ignore the final digits and prices, even though it makes no economic sense to do so. So it looks like our penchant for buying at the nines might be explained by a mixture of our tendency to round down to the leftmost digit

and our beliefs that nines inherently indicate bargains. Today's episode was written by Joe mccarnick and produced by Tyler Clang. Check out our online shop at t public dot com slash brain Stuff. Every purchase supports us directly, and of course, for more on this and lots of other valuable topics, visit our home planet, how Stuff Works dot com