When Two Plus Two is Not Equal to Four- Errors in Processing Multiple Percentage Changes

Abstract

When evaluating the net impact of a series of percentage changes, we predict that consumers may employ a "whole number" computational strategy that yields a systematic error in their calculation. We report on three studies conducted to examine this issue. In the first study we identify the computational error and demonstrate its consequences. In a second study, we identify several theoretically driven boundary conditions for the observed phenomenon.