The $63.99 Question

Alongside working through an economics textbook, I like reading popular economics books – those books aimed at introducing a technical subject to a general audience. I’ve particularly enjoyed Tim Harford ‘s oeuvre, and am currently reading Steven E. Landsburg‘s The Armchair Economist. These books are at their best when they apply economic thinking to explain strange things in everyday life.

Something both authors talk about is why shops always seem to sell things at £4.99, rather than £5.00 (or £4.49 rather than £4.50). My first thoughts on this, which I suspect would be many of yours, is that it tricks customers into thinking something is cheaper than it is. The leftmost number is a 4 rather than a 5, and we focus on this rather than the rest of the figure, so £4.99 seems closer to £4 than to £5. That penny difference seems to have grown closer to a pound. The books suggest another explanation is needed.

They say that this form of pricing came to be introduced around the time that tills were introduced into shops. The first till was invented because a saloon owner wanted to prevent his staff from pilfering his profits by pocketing the customer’s money without recording the sale. The till made sure he could monitor all the money coming in from sales. However, criminally minded staff could still get round this. Say a customer gave the exact change for a purchase, the staff member could circumvent using the till and take the money. By making the price of all items something awkward, ending in .99 or .49, it would be very unlikely customers would give the correct change. The staff member would have to use the till to get the change, and the till would ensure the staff member’s honesty.

Which got me thinking, surely we have better ways of monitoring staff these days? Just put a camera by the tills to keep an eye on them. Then we can go back to having nice rounded prices. So why don’t we? Are we all being lumbered with huge numbers of coppers out of sheer inertia, or is there another explanation?

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