U of M News Wire: May 17, 2007

 
When it comes to percentages, calculating errors can be costly for consumers
 
By Mark Cassutt
U of M News Wire

 
People deal with percentages every day: the performance of a stock portfolio, a sale at the department store, or the performance of a new hybrid car, are all often expressed as percent changes. As an everyday occurrence, calculating percentages should be second nature to the average person. “Not so,” says Akshay Rao, professor of marketing at the University of Minnesota Carlson School of Management.
 
In the paper “When Two and Two is Not Equal to Four: Errors in Processing Multiple Percentage Changes,” Rao and Haipeng Chen, a Carlson School doctoral alum and assistant professor at the University of Miami, show that consumers treat percentages like whole numbers, and this results in systematic errors in calculation. People simply aren’t coming up with four when they add two plus two. The paper will appear in a forthcoming issue of the Journal of Consumer Research.
 
“Numerical quantities such as price or product performance are often expressed in percentage form,” said Rao. “But when consumers have to deal with more than one percentage at a time, they make errors that can be costly. For instance, if a store offers a 25 percent off sale with an additional 25 percent off for a certain product, people assume they are getting a 50 percent reduction. In reality, they are getting about a 43 percent discount. On a $100 product, they pay $56.25, not $50. This phenomenon becomes even more interesting when a value goes up and then down. Imagine your stock portfolio went up 40 percent last period, and down 30 percent this period. You are not better off by 10 percent. Your portfolio is down 2 percent.”
 
Marketing and public policy implications for this phenomenon are significant. The effects of consumer miscalculation when confronted by multiple percentage changes can benefit firms at the expense of numerically challenged consumers. In their paper, Rao and Chen tested the impact of offering a 20 percent discount and an additional 25 percent discount versus an economically equivalent 40 percent discount in a retail store. The number of purchasers, sales volume, revenue and profit were all higher when the double discounts were offered.
 
Consumers have a hard time processing these numbers, especially on the fly. But it isn’t just consumers. Even experts make errors when confronted with multiple percentage changes. Journalists and lawmakers can miscalculate when processing multiple percentages such as describing improvements in achieving regulatory standards or federal agencies seeking budget appropriations.
 
Given the increasing importance of numerical information in this information age, a key implication is the need to educate consumers of numerical information in basic arithmetic. “At some point, even if you and I don’t make this error, if somebody else - such as Congress - does make the error, it affects all of us,” Rao said.
 
 
 
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Bioblitz 2007 to count creatures in fast-growing Washington County

By Mark Cassutt
U of M News Wire

 
Armed with sonar detectors, live traps and laptops, more than 300 volunteers, under the leadership of professional researchers and biologists, are expected at this year's Minnesota BioBlitz, an annual event organized by the University of Minnesota's Bell Museum of Natural History beginning at 5 p.m. Friday, June 8 at the Warner Nature Center, 15375 Norell Ave. N., in Marine on St. Croix.
 
Part contest, part scientific experiment, BioBlitz brings together scientists and volunteers in a race to document as many species as possible within a 24-hour period. Plants and animals are first identified -- some of them live-trapped -- then counted and chronicled, before being released unharmed back into the wild. This year's data will be used to help develop an ecologically sensitive management plan for rapidly developing Washington County.
 
BioBlitz aims to increase the public's awareness of an area's biological diversity, as well as to provide an environmental benchmark for natural resource managers of Minnesota parks and wild places. "It's also a great opportunity for volunteers to work alongside professional biologists to find out what they do and how they do it," says Jennifer Menken, Bell Museum wildlife interpreter and coordinator of this year's BioBlitz.
 
The event is free and open to the public. For a complete schedule of BioBlitz activities, go to www.bellmuseum.org/bioblitz. For directions, call the Science Museum of Minnesota's Warner Nature Center at (651) 433-2427. The Bell Museum is part of the university's College of Food, Agricultural and Natural Resource Sciences.
 
 
 
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Growing Concerns
A parenting question-and-answer column with Dr. Martha Erickson of the University of Minnesota

 
Question: What are some good guidelines for giving kids allowances? Should they get one just for being a member of the family? Or should it be tied to chores? And how much is an acceptable level?

Answer: There is no single right way to handle allowances. But, whether you decide to offer an allowance with no strings attached or expect children to earn their money by doing chores, being clear about the policy up front is essential.
 
In fact, many parents use a combined approach. They give a small allowance without requiring special chores, and then give children a chance to earn additional money by doing extra household work. Notice the word "extra;" children ought to help with the dishes, clean their own rooms, and, in general, pitch in as members of the household without expecting payment. That's an important part of learning to be a contributing member of a community.
 
The amount of allowance you choose to give will vary with the age of your child, the resources and values you hold, and the purposes for which your children's allowance money will be used. For example, you might give a very young child a 50-cent allowance to spend on special treats, but give a teenager a relatively large amount and expect her to budget it for clothing, recreation and miscellaneous expenses. Older children and teens can benefit from helping to decide how much allowance they need. Engaging them in developing a reasonable clothing and recreation budget provides a powerful lesson in the value of money. Living within that budget helps them learn to prioritize their needs and wishes -- and delay gratification, an important part of growing up.
 
Before giving your children an allowance, there are several other questions you ought to think about. Are there any conditions the children must meet in order to receive an allowance? For example, is the allowance tied to keeping their room in order or completing homework? If an older child has a major unexpected expense, are you willing to give an advance on the next week's allowance? Will your children be allowed to spend allowance money as they wish, or are there certain products or activities you will prohibit because they are inconsistent with your values? Will you expect your children to set aside a portion of their allowance for savings or charitable contributions? Many parents begin even with very young children to set up separate boxes or piggy banks for spending money, savings and charity -- an important step in teaching values and financial planning.
 
Whatever allowance policy you decide to follow in your family, know that you are helping your children build patterns, skills and values they will carry into adult life.