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http://ssrn.com/abstract=1682191
 
 

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Heuristic Thinking and Limited Attention in the Car Market


Nicola Lacetera


University of Toronto - Strategic Management; University of Toronto at Mississauga - Department of Management; National Bureau of Economic Research (NBER)

Devin G. Pope


University of Chicago - Booth School of Business

Justin R. Sydnor


Case Western Reserve University

May 24, 2010


Abstract:     
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 market settings with large stakes and where information is easy to observe.

Number of Pages in PDF File: 52

Keywords: Heuristic Thinking, Inattention, Automobiles, Behavioral Economics

JEL Classification: D4, L1, L62

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Date posted: September 24, 2010 ; Last revised: September 30, 2010

Suggested Citation

Lacetera, Nicola and Pope, Devin G. and Sydnor, Justin R., Heuristic Thinking and Limited Attention in the Car Market (May 24, 2010). Available at SSRN: http://ssrn.com/abstract=1682191 or http://dx.doi.org/10.2139/ssrn.1682191

Contact Information

Nicola Lacetera (Contact Author)
University of Toronto - Strategic Management ( email )
Canada
University of Toronto at Mississauga - Department of Management
Canada
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Devin G. Pope
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Justin R. Sydnor
Case Western Reserve University ( email )
Cleveland, OH 44106
United States
HOME PAGE: http://wsomfaculty.case.edu/sydnor/
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