SYMPOSIA SUMMARY Encoding, Remembering, and Using Numeric Information: Implications for Pricing

SESSION OVERVIEW Price cognition plays a pivotal role in models of consumer behavior postulated in the economics as well as the psychology literature (Monroe 2003; Winer 2006). Both streams of literature concur on the following assumption: A buyer’s subjective judgment of the magnitude of a price should be an important determinant in purchase decisions. However, the psychological processes that underlie price magnitude judgments and the strength of the association between price magnitude judgments and choice continue to be topics of debate. In this symposium, we present three new papers that offer novel perspectives on how consumers encode, process, and use price information. The first two papers draw on the numerical cognition literature and focus on how consumers encode and process price information, while the third paper examines factors that lead to a dissociation between price perceptions and choices. The first paper by Thomas, Simon, and Kadiyali examines whether the precision or roundedness of numbers influence people’s judgments of magnitude. This paper draws on the numerical cognition literature to examine how consumers encode the magnitude information from a string of digits in a multi-digit number. Specifically, drawing on previous research on the distribution of numbers and on the role of associative processes in everyday judgments, they suggest that that people nonconsciously learn to associate precise prices with smaller magnitudes, and that this association influences their price magnitude judgments and willingness to pay. They test this hypothesized precision heuristic in laboratory experiments as well as using data from real estate transactions. The second paper by Vanhuele and Laurent examines why consumers are less adept with prices that are not rounded. They suggest that short-term memory constraints induce consumers to apply mathematical rounding, truncate price endings, or resort to approximations. Their conceptualization suggests that what typically are considered as recall errors may therefore actually be the result of adaptive simplification strategies. They analyze patterns of price recall errors to show that errors follow systematic patterns that reveal these strategies. The third paper by Danziger, Gal, and Morwitz examines the influence of price magnitude perceptions on product and retailer choice in an environment where price discounts are sometimes offered and vary in their depth and frequency. Past research (Alba et al. 1999; Lalwani and Monroe, 2005) has studied the effects of depth and frequency of price discounts on price perceptions. In the present research, the authors challenge the implicit assumption of this past research, that price perceptions guide choices. They find that although respondents’ price perceptions are lower for retailers offering deep infrequent discounts, they buy more often from retailers offering frequent shallow discounts. They discuss the implications of this finding for our understanding of how consumers encode, process, and use price information. EXTENDED ABSTRACTS