Bill Bryson points out (can't remember which book) that pricing something just below a round figure (eg 0.99 or 4.99) would force shop assistants to ring up the purchase in most cases where they'd be given a dollar or a five dollar bill, rather than just pocketing the cash. So initially, it was a way to enforce honesty on employees, and the other benefits became apparent later.

Yes, I've read this in a Bill Bryson book. I'm fairly certain it is from Notes From A Small Island by Bill Bryson on the basis this is the only Bill Bryson book that I've read.

Anyhow, this pricing convention has many purposes. Firstly, customers expect change. Social convention bewtween staff and customers enforces some honesty from staff. Next, some business systems work in dollars, some work in cents. Your system may work in dollars because that is logical. Your system may work in cents to avoid rounding error. The non-zero digits act as placeholders and reduce the possibility of products being listed at 1/100th of their value. This also applies to data entry. It also allows products to be advertised as "less than $10" when it is only by five cents.

Now it appears that it serves a fourth purpose. Specifically, the extra digits make you think that the price is more reasonable and only makes you consider smaller variations in value.

Why wouldn't sales tax make it roughly the same price either way?

I'm not sure I understand your question, but I think this might have been in those glorious days before sales tax.

I think the natural defense to forced precision calculations is to simply round everything up (never down). If it's $19.35, you round up to $20. In fact, I've even gotten to the place where I really only use the most significant digit, rounded up, in my rough-cut financial judgments. If I see a car priced $14,000, my subconscious says to itself "I would never spend $20,000 on a car!". It doesn't always work, and there is a time to be more precise, but this sort of order-of-magnitude internal bartering with myself helps keep my more compulsive self in check.

I always say prices have no more than 2 significant digits.

At least for consumer goods.

interesting, many good restaurants charge full dollar menu. Like 7, 9, 11. You never see something like 8.99 unless it is a chain.

Maybe b/c, they realise their clientele is: 1. Smart enough to do the rounding up themselves. 2. Want to look more sophisticated by showing they are not using cheap tricks to nickel and dime customers.

Good example. Perhaps they're trying to encourage you to tip in whole numbers, further away from your "mental anchor" than you would with a number like $8.99.

Maybe a $10 meal nets a carefree $2 tip whereas a $9.99 meal merits a meticulous $11.49 total in the customer's head.

This is the kinda research that walmart bases their whole business on. If you even notice that every item in walmart is 12.37, 17.46 or something to that effect. That gives people that impression that the price is set as low as possible. when in fact it's just made to appear so.

fyi: i hate walmart, go target

The article is very interesting on the psychology of how it works and anecdotally I would completely agree with the findings.

However, the title is putting the cart before the horse. Just because people respond to things this way, it is not the cause of the tradition.

The best researched article I could find (that matches a story from an old book I once had) about the origins of the $.99 can be found here http://www.straightdope.com/classics/a3_166.html

On the other hand: Perhaps it makes the tradition survive?

Maybe like in the theory of evolution - things get started by chance by stay for a good reason.

The straight dope was interesting, too.

Turns out most people are statically typed.

There's a self-service laundromat I go to, and the have you charge up a reusable swipe card.

The card machine takes 1's, fives, and so on; bills, no coins, but the machines themselves cost oddball amounts.

The big-load washer was something like $5.63, and the drier was $0.69 for 15 minutes.

So you always have change left on your card and a reason to come back. You do not want to give them the remainder for free - do you?

They do this with tokens at arcades. They rig it so that no matter what, you're going to end up with an extra token -- incentive to come back and spend it.