Heuristic thinking and limited attention in the car market
By: Nicola Lacetera, Devin G. Pope, Justin R. Sydnor
Contributors: Pope, Devin G.; Sydnor, Justin R.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17030; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17030.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Can heuristic information processing affect important product markets? We explore whether the tendency to focus on the left-most digit of a number affects how used car buyers incorporate odometer values in their purchase decisions.  Analyzing over 22 million wholesale used-car transactions, we find substantial evidence of this left-digit bias; there are large and discontinuous drops in sale prices at 10,000-mile thresholds in odometer mileage, along with smaller drops at 1,000-mile thresholds.  We obtain estimates for the inattention parameter in a simple model of this left-digit bias.  We also investigate whether this heuristic behavior is primarily attributable to the final used-car customers or the used-car salesmen who buy cars in the wholesale market.  The evidence is most consistent with partial inattention by final customers.  We discuss the significance of these results for the literature on inattention and point to other market settings where this type of heuristic thinking may be important.  Our results suggest that information-processing heuristics may be important even in markets with large stakes and where information is easy to observe"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/21/2011.

Includes bibliographical references.

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