Download this Paper Open PDF in Browser

Heuristic Thinking and Limited Attention in the Car Market

52 Pages Posted: 24 Sep 2010 Last revised: 30 Sep 2010

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

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

Keywords: Heuristic Thinking, Inattention, Automobiles, Behavioral Economics

JEL Classification: D4, L1, L62

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: https://ssrn.com/abstract=1682191 or http://dx.doi.org/10.2139/ssrn.1682191

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/

Paper statistics

Downloads
103
Rank
194,368
Abstract Views
1,026