Left-Digit Bias: Theory and Empirical Evidence from a Tax Salience Experiment

Kaushil Patel

Papers from arXiv.org

Abstract: Demand often drops sharply at whole-dollar prices. To explain this phenomenon, known as left-digit bias, we develop a random utility model in which consumers consider a good only if its price is below a heterogeneous attention threshold. Masses of consumers with integer attention thresholds generate demand discontinuities. When a tax is introduced, the model predicts a weaker demand response compared to rational choice for left-digit biased consumers. Using data from a tax experiment, we find that the model matches behavioral moments and partially identify the distribution of willingness to pay relative to thresholds. A weak demand response need not imply a low excess burden of taxation and understanding the specific mechanism is important for welfare analysis.

Date: 2026-11
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