Various decision contexts require the calculation of smaller recurring changes accumulated over time and their comparison to larger one-time changes (e.g., $100 periodic increase in monthly rent every year vs. a $1000 increase in rent at the end of 5 years). In both hypothetical and incentivized studies, we demonstrate an inaccuracy of estimations involving total cumulations of smaller recurring changes and single lump sums. We document this effect when individuals process increasing or decreasing changes in gains or losses (e.g., raises in wages or rent, discounts in membership fees). Importantly, these biases occur even when the changes are provided to the consumers as clear absolute dollar values as opposed to complex percentages. We discuss the theoretical contributions of our study as well as its implications for consumers, managers, and policy makers.
|Number of pages||13|
|State||Published - Dec 2023|
Bibliographical notePublisher Copyright:
© 2023, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.
- Estimation errors
- Numerical biases
- Numerical cognition
ASJC Scopus subject areas
- Business and International Management
- Economics and Econometrics