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

Haipeng (Allan) Chen () and Akshay R. Rao

Journal of Consumer Research, 2007, vol. 34, issue 3, 327-340

Abstract: 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. (c) 2007 by JOURNAL OF CONSUMER RESEARCH, Inc..

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jconrs:v:34:y:2007:i:3:p:327-340

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Journal of Consumer Research is currently edited by Bernd Schmitt, June Cotte, Markus Giesler, Andrew Stephen and Stacy Wood

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