CPM CPM Price Psychology & Behavioral Economics 1 — Questions and Answers
Question 1: Charm pricing (e.g., $9.99 instead of $10.00) leverages which cognitive bias?
- Left-digit anchoring (Correct answer)
- Loss aversion
- Sunk cost fallacy
- Framing effect
Correct answer: Left-digit anchoring
Consumers disproportionately encode the left-most digit of a price, making $9.99 feel significantly cheaper than $10.00.
Question 2: The decoy effect in pricing involves adding a third option primarily to:
- Make the target option appear more attractive by comparison (Correct answer)
- Lower overall price perception
- Comply with price discrimination laws
- Reduce cognitive load for buyers
Correct answer: Make the target option appear more attractive by comparison
An asymmetrically dominated decoy shifts preference toward the target option by making it look superior to the decoy.
Question 3: Prospect theory suggests buyers are more motivated by:
- Avoiding losses than acquiring equivalent gains (Correct answer)
- Maximizing total value per dollar
- Seeking the lowest available price
- Anchoring to historical prices
Correct answer: Avoiding losses than acquiring equivalent gains
Kahneman and Tversky showed that the pain of losing $100 is psychologically stronger than the pleasure of gaining $100.
Question 4: When a retailer sets a high 'original' price and then offers a discount, this exploits which pricing psychology principle?
- Price anchoring (Correct answer)
- Sunk cost fallacy
- Endowment effect
- The Diderot effect
Correct answer: Price anchoring
The high original price serves as an anchor, making the discounted price seem like a greater bargain than it may objectively be.
Question 5: Which framing approach typically generates higher willingness to pay for an upgrade?
- 'Upgrade for only $5/month more' vs. 'Upgrade costs $60/year' (Correct answer)
- 'Annual plan vs. monthly plan'
- 'Premium tier vs. basic tier'
- 'Pay now vs. pay later'
Correct answer: 'Upgrade for only $5/month more' vs. 'Upgrade costs $60/year'
Presenting the incremental cost in a smaller time unit (monthly) reduces perceived outlay versus the larger annual equivalent.
Question 6: The 'pain of paying' concept in behavioral pricing suggests cash transactions lead to:
- Greater purchase reluctance than card or digital payments (Correct answer)
- Higher customer satisfaction
- Lower return rates
- More rational price comparisons
Correct answer: Greater purchase reluctance than card or digital payments
Physical cash feels more 'real,' triggering stronger loss aversion than abstract card or digital payments.
CPM CPM Price Psychology & Behavioral Economics 1
Charm pricing (e.g., $9.99 instead of $10.00) leverages which cognitive bias?