Consumers Pay for Their Inattention

Consumers routinely ignore information when making purchases. They overlook the tax attached to a price, skim past ingredient lists, and often fail to process exact numbers with any precision. This kind of inattention is well documented. What is less well understood is how businesses exploit this behavior.

Chicago Booth’s Andreas Kraft and University of Texas’s Raghunath Rao explored a specific form of inattention known as left-digit bias, which is among the most reliably documented quirks in consumer psychology. Their study, focused on the used-car market, suggests that dealerships systematically attract more inattentive buyers and profit handsomely as a result—and also that this bias could be hard to address with increased disclosure or transparency.

Consumers anchor heavily on the leftmost digit when they evaluate a number. Prices such as $1.99 or $1.90 exploit this tendency. Left-digit bias, and the fact that people possess it in varying degrees, creates a distinct dynamic in the used-car market. Inattentive buyers at a dealership see a car with 49,800 miles and mentally register something closer to 40,000 miles. That misperception inflates both what they think the car is worth and what they think they would pay for an equivalent car in the private market, the researchers explain.

Their study analyzed prices and odometer readings in every title submission to the Texas Department of Motor Vehicles between 2014 and 2021—a dataset that captured roughly 10 percent of all vehicle transactions in the United States during this period. Inattentive buyers tend to purchase used cars from dealerships rather than private sellers, according to the researchers, who add that dealers are generally more aware of left-digit bias and able to capitalize on it.

Dealerships always command a premium over private markets but charge even more for cars near favorable mileage thresholds. To inattentive buyers, those prices can still appear attractive because they perceive the car as having lower mileage than it really does and therefore overestimate what a comparable car would cost elsewhere.

Attentive buyers, by contrast, more accurately determine what a 49,800-mile car should cost, recognize the dealership premium, and go elsewhere. Kraft and Rao find that dealership customers, based on the prices they paid, were about twice as inattentive to exact mileage as customers who shopped in the private market.

This sorting mechanism has clear financial consequences. In a process the researchers call “behavioral skimming,” dealerships charged significantly more for vehicles with odometer readings just below a 10,000-mile threshold than for comparable cars just above. Kraft and Rao find that the difference in profit ranged from roughly $46 to $168 per vehicle across the various thresholds, with the sharpest effects between 60,000 and 100,000 miles, where the bulk of dealership transactions occurred.