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Health & Psychology Mexico

In 2009, a paper by Chetty, Looney, and Kroft found that consumers perceived tax-salience as a price increase. Using a difference-in-difference analysis, researchers use data from this experiment to measure whether or not individuals pay attention to the decimal digits of prices (known as left-digit bias). Results find that when tax salience shifts the left-most digit upwards, sales decrease in greater amounts, despite the fact that all products share a tax rate. For instance, if the price of a cup of coffee raised from $3.20 to $3.60, consumers are more likely to still buy it than if the price were raised from $2.80 to $3.15. These findings suggest that the main channel through which tax salience affects consumer decision making is left-digit bias.

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