Because prices in English are written out left-to-right, some research suggests that consumers primarily focus on the left-most digits of a price, thereby ignoring the least significant digits and proper rounding when making comparisons. 

Left-Digit Effect

Prospect theory is a behavioral economic theory describing how individuals evaluate gains and losses relative to a reference point under risk or uncertainty. It posits that people are loss-averse, finding losses psychologically more painful than equivalent gains. In psychological pricing, a consumer purchasing an item for \$19.95 may perceive the \$0.05 difference from a \$20.00 reference point as a gain, demonstrating how purchasing decisions are framed relative to reference points.

Prospect Theory

University of Minnesota - Twin Cities

A pricing strategy where consumers perceive just-below prices (prices slightly below a round number, such as \$19.99) as lower than they actually are.

Psychological Pricing

Hanson, Jon D. and Kysar, Douglas A., Taking Behavioralism Seriously: The Problem of Market Manipulation (1999). New York University Law Review, Vol. 74, p. 632, 1999, Harvard Public Law Working Paper No. 08-54, Available at SSRN: https://ssrn.com/abstract=1288182

Learn Before

Learn After

Learn After