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Thursday, May 17, 2007

Percentages puzzling to many people

Researchers from my alma mater, the Carlson School of Management at the University of Minnesota, have discovered that many people become confused when dealing with more than one percentage at a time. For example, when a store offered 25 percent off on top of a 20 percent discount, they enjoyed significantly more sales than the equivalent offer of a 40 percent reduction. Evidently most shoppers simply add the two discounts together -- 25 plus 20 in this case.

I recall someone saying they saw an item that went on clearance for 50% off and after going unsold got marked down another 50%. They brought the item to the checkout only to be told by the clerk that this could not be right because then there would be no charge -- 50 minus 50 is obviously zero! The shopper demanded that the store manager be called in to resolve the matter. However, after much deliberation, the superior declared that the clerk had it right and refused the sale because the store would go broke by giving away products for free.

Here’s a puzzler that will weed out those who do not deal well with percentages. Imagine you buy a stock for 100 and it shoots up 40 percent but then drops back by 30 percent. How much profit will you make by then selling this stock? See this report by UMNnews for the answer.


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