Could this be an application of Benford’s Law for detecting political bias or worse? Maybe.

The terms weren’t obvious to me at first, so let me explain what is meant by “odd pricing”. In stores in the U.S.A., and elsewhere (the study below used municipal tax data from Denmark), prices for goods and services marketed and sold to consumers are often priced with 9 endings, including decimals.

Here is a typical example, $89.99. It is an obvious but effective way of exploiting cognitive bias. People perceive the price as $80.00, or in the $80 to $89 dollar range. It would be more straightforward to simply price as $90. The same is especially true when there is a transition between orders of magnitude e.g. from three to four digits.

Doesn’t $998.99 seem more affordable than $1000?

From the concept of odd pricing, i.e., setting rightmost price digits below a whole number, this paper advances the political counterpart of odd taxation using a panel of Danish municipal taxes.

First, the distribution of tax decimals is non-uniform and resembles the distribution of price-endings data.

Second, nine-ending and other higher-end decimals are found to be over-represented which echoes odd pricing research. It suggests that incumbents take voters’ biases into account and apply odd taxes to minimize the political costs of taxation while maximizing revenue. Attention should be given to how policy digits are arranged to exploit voters’ cognitive biases.

- Asmus Leth Olsen, “The politics of digits: evidence of odd taxation (Abstract)”, Public Choice, Springer, June 2011

Preview DOI 10.1007/s11127-011-9807-x