bidding on whole numbers

After reviewing the coin bid data from class, I found it interesting that some 40% of the class bid on a "whole number", or an integer.  In addition, 7% of the class thought they'd be "smarter than the rest" and big the additional $0.01 over whatever whole number they had chosen.  However, only 1% decided to be "doubly smart" and bid $0.02 over the whole number... The same was the case for $0.03.  No one bid $0.04 over the whole number.  

Also of interest, 9% of the bidders submitted a bid at the 50 cent mark.  Additionally 3% thought they'd be "smarter than the rest" and bid 51 cents.  Also visible on a graph are clear spikes of bids at the remaining two quartile levels of 25 and 75 cents.  

This is interesting in that it shows a human tendency to focus on whole number or quarter numbers.  This can also be seen often in the stock market.  For example, here recently the market bounced strongly at 10,000 and then at 8,000.  The "big-round numbers" are easy targets for people to say "wow, 8,000, I should buy b/c we haven't been this low in forever!".  Of course, 8,000 should be no different than 7,995, but there is a strong psychological aspect of the round number.

Further, during a test in 1975 by Rosch, it was found that subjects are more likely to agree with the statement that "996 is almost 1000" than with the statement that "1023 is almost 1027", although both sets differ by 4.

All of this is fascinating and opens the door to a potential advantage for those that recognize this human tendency.

The author of this blog plans to explore this more through the "Round Numbers and Security Returns" article published by Harvard's Devin Shanthikumar.  This paper can be found at:

http://www.people.hbs.edu/dshanthikumar/RoundNumbers.pdf