Price Rounding Experiment

Two years ago, I got caught up in the debate to abolish the penny. One of the suggestions proposed by the anti-penny camp is to adopt Swedish Rounding, a method by which cash purchase totals are automatically rounded to the nearest five cents. Sweden, Finland, the Netherlands, Hungary, Australia, and New Zealand already use this method.

But Americans don’t trust price rounding, claiming that it will end up costing them cumulatively over several purchases. Statisticians say nay, but I wanted to find out for myself just what the net effect of Swedish rounding would be to me.

For the next two years, I attempted to save every receipt of my transactions, cash or credit. I wasn’t able to save every single one, but hopefully 345 receipts I have provide a large enough sample size to accurately reflect my purchasing trends. I tossed every receipt whose bottom line ended with five or zero, the two values that are not rounded. For the rest I tabulated the Swedish rounding adjustment (+/- 1 or 2 cents), and then added the pluses and minuses together to get the net result.

If prices in the US were subject to Swedish rounding, it would have cost me 26 cents over the last two years. That’s an average of -$0.000754 per transaction.

Let’s extrapolate!… 13 cents a year times 300 million US citizens = $39,000,000 for all US citizens per year. Where would that money go?

You can play along at home. Go through your credit card statements, and track your individual charges as they appear. Round and tally, and see for yourself what Swedish rounding would have done to you.

Of course, this all assumes that merchants would not change their prices if Swedish rounding were instated. Do you trust your merchants not to arrange prices in your favor? Would we still see such psychological pricing tactics like "$5.95" instead of "$5.99"? I’d much prefer to see merchants price their wares in such a way that the final price including tax came to an even dime every time. Merchants, if you hate pennies, the power of change is in your hands.

But if we’re going to eliminate the penny, we should simply abolish the cent as a subunit of the dollar, with the dime becoming the new smallest unit. Less and less is the hundredths of a dollar still relevant. On a day to day basis, I think we’d all be content with tenths of a dollar alone. No more pennies or nickels would be needed, but we’d need a new 20 cent coin in place of the current quarter. (The mill, one tenth of a cent, has been the smallest unit all this time, but is only seen on gas price signs. Why does it persist there when it has vanished everywhere else?)

There is one hurdle to doing this. The current law says that sales tax will be collected to the nearest $0.01. This may explain why retailers don’t round prices already. Are sales tax laws forcing the hand of merchant to use cents in change?

I’ve already discussed the possible ongoing demise of the cent here. As a coin collector, I’d hate to see the penny, or any other coin, disappear, but such is the forward inertia of progress. It still sucks that the devaluation of the US dollar has rendered our smaller coins into a nuisance.


Nifty Wikipedia Thing: the humble utilitarian test pattern

Movies I’ve Seen:

Wall*E ~ The most thought-provoking G-rated movie I’ve seen in years. I walked out of the theater talking about transhumanism, automation, the politics of WalMart, behavioral adaptation, and recycling, just to name a few topics. Strongly recommended!

What I’m Reading:

"Atlas Shrugged" by Ayn Rand (30.3%)

"Dave Barry is From Mars and Venus" by Dave Barry

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