Think you're shopping intelligently for a used car? New research from the McCombs School of Business at The University of Texas at Austin suggests you might be overly influenced by the first digit on the odometer, when you're determining the car's worth.
Blame left-digit bias, a psychological phenomenon. Studies have shown that people tend to see something costing $1.99 as far less than $2 — although they're nearly identical — because they pay too much attention to the leftmost digit and too little to the rest.
That inattention can cost them dearly at a used car lot, finds Raghunath Rao , professor of marketing. When an odometer is just under a multiple of 10,000 — say, 49,999 miles instead of 50,000 — shoppers pay up to $170 extra per vehicle.
He calls that amount a "mental tax" for not looking closely enough at odometer readings. Private sellers may not exploit this bias, but savvy dealers do. Says Rao, "The dealerships are the ones who are collecting these taxes from people."
Thresholds of Inattention
Objectively, two cars with nearly identical mileage should be worth about the same. But that's not how consumers value them, Rao theorized. Because of left-digit bias, they're willing to pay a little more for a car that's just below a round number such as 20,000, 50,000, or 100,000.
With Andreas Kraft of the University of Chicago, he looked at Department of Motor Vehicles records for 4.8 million used car transactions in Texas from 2014 to 2021. They made up 10% of the nation's total used car sales.
The researchers compared sales volumes and prices on either side of 10,000-mile cutoffs, such as 19,900–19,999 miles versus 20,000–20,099 miles. They found prices and sales volumes were higher just below the thresholds and lower just above them — especially at dealers.
- Left-digit bias was twice as strong at dealerships as in private, peer-to-peer sales.
- The effect was strongest at 100,000 miles, where car lots pocketed an extra profit of $168.
- Cars just below the thresholds sold 6% faster than cars just above.
- Dealers bid more aggressively for such vehicles, which were 4% more likely to be sold through a dealer than through a private seller.
"Dealerships benefit from this bias that exists purely in consumers' minds," Rao says.
More Than Mileage
Their left-digit bias could extend beyond odometer readings, Rao says. It could influence their decisions on electric vehicles.
For example, when a customer sees one car with a battery range of 280 miles and another with a range of 310, they might feel stronger motivation to buy the latter, even though the difference is not significant.
Rao's main takeaway is not for sellers, but for consumers: Be aware of unconscious bias and try to compensate when making any major purchase, not just cars.
"Next time you're in the market for a used good, don't just pay attention to the leftmost digit," he says. "Pay attention to all the digits and set your price expectations accordingly."
" Market Effects of Inattention: Theory and Evidence from Left-Digit Bias " is published in Journal of Marketing Research.
