Scientific American has an article about Why Things Cost $19.95. They find that the more precise the price, the less likely people are to negotiate over the value. While the evidence they suggest supports what I believe, I disagree with their conclusions.
They say that we’re more likely to believe in “$19.95″ pricing because we’re “thinking in cents” rather than in dollars. I believe that it’s because we believe precise prices are derived from precise means - from accurate portrayals of time & materials and profit margins. When we see a round number we think “Oh, they just made that number up, we can negotiate that,” but when we see a precise number we think “Well, that must really be the value of it.”
Read my post on $19.99 vs. $20.
Read: Why things cost $19.95
In the 1890s, Vilfredo Pareto noticed a large disparity between the richest citizens of Italy and the rest of the population. This distribution became known as the Pareto Principe, or the 80/20 rule. Recently, scientists have uncovered some interesting facts underlying the Pareto Principle.
“While the distribution of the richest 10% does indeed follow a different behavior (power law) than the rest (Gibbs or log-normal), one need not assume different dynamics at work in the two cases,” Chatterjee explained to PhysOrg.com. “In fact, both types of distributions can arise from the same model. In the case of the random savings model, the agents having the highest savings fractions will have a higher probability of ending up in the richest 10% of the population, while in the random thrift model, the agents with higher thrift value generally tend to be the richest.
“As an agent gets richer, a feedback effect occurs by which the rich are more likely to gain from a transaction than the poorer agents—thereby resulting in an accumulation of assets for the richer players that is manifested as a power law tail.”
Read: World’s economies show similarities in economic inequality