According to recent study by The University of Chicago's Booth School of Business and published in American Economic Review, human brains have a bias to pay attention to the first digit in a number, like the mileage of a car, and if you understand it, you can use it to your advantage when buying or selling a vehicle.
The study set out to determine whether car buyers exhibit a heuristic observed in other arenas called the left-digit bias. This would mean that car buyers focus on the first digit in an odometer reading, such as the "4" in 49,100 miles, when deciding how much to pay for a car. Having studied +20 million car sales, it turns out car buyers are focusing on that first digit, and will pay an additional $150-200, on average, for a car that's just below the next mileage interval, such as 50,000, than one that's just above it.
The authors found prices fall at each 10,000-mile interval from 10,000 to 100,000 miles. "Cars with odometer values between 79,900 and 79,999 miles are sold on average for approximately $210 more than cars with odometer values between 80,000 and 80,100 miles, but for only $10 less than cars with odometer readings between 79,800 and 79,899." The study found prices also drop at 1,000-mile thresholds, though the decline is smaller.
The rest of the world might be wondering if the same held true for odometers that measure kilometers instead of miles, like we Americans use. Using a smaller sample, the Booth team analyzed Canadian data and found the same phenomenon. Regardless of the unit of measure, human brains lead us to pay more for a car with a lower left digit, though it's not a truly rational choice.
So, how can you use this information to your advantage when selling or purchasing a vehicle?
- Sell your vehicle before the odometer clears the next 10,000-mile/kilometer mark. Since people only remember the first digit of the odometer reading, once your car crosses that mark, odds are your sales price will drop
- When buying, look for a car that has just clicked over a 10,000-mile/kilometer mark. It is likely the discount is already priced in
- Negotiate hard if you're considering buying vehicles nearing the next 10,000-mile/kilometer mark. After driving a few more miles and clicking over that mark, the vehicle will drop in value. Think of that new value, reducing the asking price by $150 to $200, and work to get the deal you really want
This won’t be easy because we are all susceptible to left-digit bias. Just think how many times you bought something that was $1.99 and you liked that better than a similar product at $2.10. Remember this bias the next time you're shopping for a used car, and don't let your brain steal $200 from you!