Numbers & Psychology

Lots of news these days about the current mortgage crisis. Heard yet another story on NPR’s Morning Edition today about it, after which came a interesting little report about a recent study conducted by a couple of Cornell University researchers concerning the attitudes of prospective home buyers.

The study looked into how home buyers tend to respond to asking prices. Specifically, the researchers wanted to figure out whether or not it mattered to buyers if the price was listed as a rounded-off figure -- say $680,000 -- or a non-rounded off figure like $682,417.

After conducting some tests, the researchers concluded that buyers have what they describe as a “built-in bias in favor of precise numbers.” (They kept referring to non-rounded-off numbers as “precise” in the report, although I think one could argue the term is not necessarily being used accurately here.) That is to say, the buyers were more likely to view a rounded-off number as higher, and thus were more inclined to buy the home with a non-rounded off price tag.

In their conclusion, the researchers decided this bias in favor of non-rounded-off prices is a vestige of our retail shopping experience. When we shop at the local hardware store and see an item priced at $9.02, we instinctively assume the price reflects some sort of savings to the consumer. Therefore, as the reporter explained, “when people see houses with precise numbers, somewhere in the back of their minds they think ‘discount shopping.’”

The segment concluded with a representative from a New York real estate company expressing skepticism about the researchers’ findings. According to her way of thinking, a non-rounded-off price tag wouldn’t necessarily be met with enthusiasm by some buyers. Indeed, the odd-looking figure might give the buyer pause since, as she put it, the price “would seem a little strange.”

You can probably guess where I’m headed here. This is a poker blog, after all.

Just so happened that right after I heard the NPR story I got out the iPod-like device and listened to the March 25th episode of PokerRoad Radio (with Brandon Cantu). At one point about halfway through the show, the hosts engaged in a brief digression concerning bet amounts. Gavin Smith talked about how he had been experimenting with differently-sized raises during the first day of the WPT World Poker Challenge, betting 225, then 275, etc.

That led Joe Sebok to make a comment about players online betting strange-looking amounts like 2,222 and how it makes him “want to go through [his] machine and punch them in the face.” Ali Nejad suggested that response was precisely why people make such odd-looking bets -- it puts opponents on tilt. (Sebok denied the bets actually affected his game.) “We’re anal. We want round numbers,” argued Nejad. Thus do some of us object when the bets come out all weird-looking.

With regard to that idea that we “want” round numbers, the Cornell researchers did point out how the non-rounded-off numbers “momentarily confuse” consumers, and while they surmised home buyers ultimately overcame that confusion to conclude the prices were favorable, the N.Y. real estate company rep suggested that confusion produced a different consequence, perhaps even turning off the prospective buyer.

We’ve all encountered that rogue at the poker table who keeps betting weird, hard-to-explain amounts. The bets usually come as the first raise on a given round, e.g., it is preflop, the blinds are 50/100, and someone open bets 333 or something. Such a bet certainly can “momentarily confuse” the table. Such a bet can also give the bettor a crazy-seeming image (possibly part of the plan).

Additionally, the non-rounded-off bet might be said to produce a practical consequence, namely, it makes it more difficult (for most of us) subsequently to calculate pot odds. Have talked more than once this week about my own struggles to calculate on the fly my “equity” in a given hand. Such problems can be even harder to solve when we ain’t dealin’ with easy-to-manage, round numbers.

In any event, I think I share the N.Y. real estate rep’s skepticism about the Cornell researchers’ conclusions. I don’t think the non-rounded-off price tag encourages buyers all that much.

I know it doesn’t work that way at the poker table, anyway.