Price Discontinuities in an Online Market for Used Cars

Abstract

We use more than 63,000 datapoints from a German used car market website to document systematic and substantial price drops at vintage (= year of first registration) thresholds and 10,000 km odometer marks. The latter finding replicates the findings in Lacetera et al. (2012), whereas the first dimension cannot be analyzed with their US data because only German cars have such legally mandated and regulated "birthdates". Hence we have the unique opportunity to study the presence of coarse information processing within the same dataset and decision problem but across two separate domains. We document that discontinuities in these two domains are of comparable size. While Lacetera et al. (2012) explain their result with a left-digit bias in the processing of numerical information, vintage discontinuities cannot be explained by this. We propose a slightly more general model of information prominence and availability bias to accommodate our findings.

Do Professionals Get It Right? Limited Attention and Risk‐taking Behaviour

“…However, the particular choice of the polynomial does not affect our estimates. 12 This feature of our data differs from previous studies using other settings in which the allocation of left digits is not entirely random (Lacetera et al, 2012;Englmaier et al, 2013). To explore this possibility, we compare the characteristics of treated and non-treated athletes.…”

“…However, we find thatin line with previous research by Brown (2011)this does not affect our results.11 Adding any combination of polynomials up to the order of 15 yields virtually identical results. The fifthorder polynomial is chosen based on significance levels when regressing survival on distance(Lee and Lemieux, 2010).12 This feature of our data differs from previous studies using other settings in which the allocation of left digits is not entirely random(Lacetera et al, 2012;Englmaier et al, 2013).© 2016 Royal Economic Society.…”

Behavioral Inattention

“…For instance, if x = 12, 345 miles, then x d = 10, 000 miles and r = 2, 345 miles, and the perceived mileage is Lacetera, Pope, and Sydnor (2012) estimate a structural model for the perceived value of cars of the form V = −f (x s (x, m)). They find a mean attention parameter of m = 0.69 (see also Englmaier et al (2017)). Busse, Lacetera, Pope, Silva-Risso, and Sydnor (2013b) break down this estimate along covariate dimensions, and find that attention is lower for older and cheaper cars, and lower for lower-income retail buyers.…”

Poverty and limited attention

“…Increasing evidence indicates that limited attention plays a major role in decision-making (for an overview, see Gabaix 2019). For example, consumers do not fully attend to odometer mileage of used cars (Lacetera et al 2012, Busse et al 2013, Englmaier et al 2018, age of used cars (Englmaier et al 2018), shipping costs (Brown et al 2010), existing taxes (Chetty et al 2009), or new tax rules (Abeler & Jäger 2015). Yet, few economic studies analyze whether individual differences in attention allocation exist.…”