When Two Plus Two Is Not Equal to Four: Errors in Processing Multiple Percentage Changes

When Two Plus Two Is Not Equal to Four: Errors in Processing Multiple Percentage Changes

When evaluating the net impact of a series of percentage changes, we predict that consumers may employ a "whole number" computational strategy that yields a systematic error in their calculation. We report on three studies conducted to examine this issue. In the first study we identify the...

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Veröffentlicht in:Journal of Consumer Research. - University of Chicago Press. - 34(2007), 3, Seite 327-340
1. Verfasser: Chen, Haipeng (Allan) (VerfasserIn)
Weitere Verfasser: Rao, Akshay R.
Format: Online-Aufsatz
Veröffentlicht: 2007
Zugriff auf das übergeordnete Werk:Journal of Consumer Research
Schlagworte:Behavioral Decision Theory Judgment and Decision Making Pricing Promotions (Sales, Coupons) Experimental Design and Analysis (ANOVA) Business Mathematics Behavioral sciences Economics Haipeng (Allan)
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500 |a * Haipeng (Allan) Chen is assistant professor and Mays research fellow, Marketing Department, Mays Business School, Texas A&M University, 220P Wehner Building, 4112 TAMU, College Station, TX 77843 ( hchenmays.tamu.edu ). Akshay R. Rao is General Mills Professor of Marketing and director, Institute for Research in Marketing, Carlson School of Management, University of Minnesota, 321 19th Avenue South, Minneapolis, MN 55455 ( arao@csom.umn.edu ). The first author is indebted to the ACR‐Sheth Dissertation Grant Foundation for their financial support based on a dissertation proposal competitive award, to the Carlson School of Management for a competitive Doctoral Dissertation Fellowship, and to the University of Miami for its General Research Support Award and James W. McLamore Summer Awards. The authors also acknowledge the constructive comments of Terry Childers, Rajesh Chandy, Amna Kirmani, Kent Monroe, Michael Tsiros, Jerry Zhao, a seminar audience at the University of Colorado, Boulder, three anonymous reviewers, the associate editor, and the editor at JCR on earlier versions of this manuscript. Finally, we thank Lorena Bustamante for her help with data collection for study 3. The depression took a stiff wallop on the chin here today. Plumbers, plasterers, carpenters, painters and others affiliated with the Indianapolis Building Trades Unions were given a 5 percent increase in wages. That gave back to the men one‐fourth of the 20 percent cut they took last winter. (New York Times, quoted in How to Lie with Statistics [Huff 1954 , 111]) 
520 |a When evaluating the net impact of a series of percentage changes, we predict that consumers may employ a "whole number" computational strategy that yields a systematic error in their calculation. We report on three studies conducted to examine this issue. In the first study we identify the computational error and demonstrate its consequences. In a second study, we identify several theoretically driven boundary conditions for the observed phenomenon. Finally we demonstrate in a real‐world retail setting that, consistent with our premise, sequential percentage discounts generate more purchasers, sales, revenue, and profit than the economically equivalent single percentage discount. 
540 |a © 2007 by JOURNAL OF CONSUMER RESEARCH, Inc. 
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