Psychological pricing

The theory that drives this is that pricing practices such as this cause greater demand than if consumers were perfectly rational.

These factors have become less relevant with the increased use of checks, credit and debit cards, and other forms of currency-free exchange; also, in some jurisdictions the addition of sales tax makes the advertised price irrelevant and the final digit of the real transaction price effectively random.

Some studies show that buyers, even young children, have a very sophisticated understanding of true cost and relative value and that, to the limits of the accuracy of the test, they behave rationally.

Now that many customers are used to just-below pricing, some restaurants and high-end retailers psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication.

[6] Kaushik Basu used game theory in 1997 to argue that rational consumers value their own time and effort in calculation.

[11] Thomas and Morwitz (2005) suggested that this bias is a manifestation of the pervasive anchoring heuristic in multi-digit comparisons.

Level effect captures the magnitude underestimation caused by anchoring on the leftmost digits of prices.

[1] Choi, Lee, and Ji (2012) examined the interactive effects of 9-ending prices and message framing in advertisements.

[17] Further, it was found that citizens' evaluations of public-school districts in a Danish population changed noticeably based on the leftmost digit.

[18] MacKillop et al. (2014) looked at how the left-digit effect affects the relationship between price hikes and smoking cessation.

[19] According to Davidovich-Weisberg (2013), in Israel several high-profile regulatory commissions have joined to ban retailers from charging prices ending in 99.

In addition, due to the phasing out of certain denominations of coins in Israel, these quirky prices also made little practical sense in terms of everyday shopping.

For cash transactions with a round price, there is a chance that a dishonest cashier will pocket the bill rather than record the sale.

[citation needed] In its 2005 United Kingdom general election manifesto, the Official Monster Raving Loony Party proposed the introduction of a 99-pence coin to "save on change".

[25][26] A recent trend in some monetary systems as inflation gradually reduces the value of money is to eliminate the smallest denomination coin (typically 0.01 of the local currency).