There's a heuristic at work here which isn't completely unreasonable.

I buy $15 items on a daily basis. If I form a habit of ignoring a $5 savings on such purchases, I'll be wasting a significant fraction of my income. I buy $125 items rarely enough that I can give myself permission to splurge and avoid the drive across town.

The percentage does matter -- it's a proxy for the rate at which the savings add up.

It's also a proxy for the importance of the savings relative to other considerations, which are often proportional to the value of what you're buying. If you were about to sign the papers on a $20000 car purchase, would you walk away at the last minute if you found out that an identical car was available from another dealer for $19995? Would you try to explicitly weigh the $5 against intangibles such as your level of trust in the first dealer compared to the second, or would you be right to regard the $5 as a distraction and ignore it?

I've had to consciously adjust my reactions on this sort of thing a few times, by reminding myself that the amount I should care about saving 1 euro on a product should not depend on the total price - but only and specifically on how frequently I will buy the product.

Put another way: it helps to have the right formula to replace the wrong one.

One reason that I would do the 20 minute trip across town for a $5 saving is to reward the store with the good deal and punish the store with the high price.

Since a 20-minute trip is almost never worth $5 to me, it will really depend on how cranky I am.

In this scenario, given that they are different branches of the same store, the whole thing might make me so cranky that I go to another store completely or figure out a way to go a while longer without a calculator.

This is pretty much why I do not have colour ink in my printer right now. I was at a Staples recently and they had ink for a price I was willing to pay but I knew they were selling it online cheaper.

I know I'm not acting rationally about whether I have ink and how much I'm spending on it. I also know that I shouldn't assign moral values to Staples' pricing policies, but I don't think I'll be printing in colour until either I find someone with a pricing policy that doesn't feel all wrong to me or my girlfriend buys some ink because she doesn't want to wait for me to do it any longer.

The seeming irrationality of the customers choice may disappear after the cost of decision-making is taken into account.

In our daily life we are constantly required to estimate trade-offs between things that are very difficult to quantify (e.g. pleasure of wearing a new jacket - money that has to be paid – extra hours of work to earn this money - …). Hence using simple subconscious heuristics (such as “improving the trade-off by 50% is worthy of your time, 5% is not”) is very helpful. A constant search for an optimal solution would make a nightmare out of our every decision, which is hardly worth an occasional 5$ saving.

In this specific example, I believe that increasing the price differentials would have justified an additional mental effort, leading more people to the “optimal choice”.

Converting between time and money sounds like a good solution to this problem.

If you're interested in the broader psychological mechanism behind this bias, I highly recommend Jonah Lehrer' s blog post on irrational purchasing decisions: http://scienceblogs.com/cortex/2009/02/shopping.php

I've come across this problem before - what the problem really is is the inappropriate use of proportional savings ($5 is a higher proportion of $15 than of $125) when the attention should be on the absolute savings ($5 in either case) because of the way the problem was framed. The way the problem was presented in this post actually obscures this point.

3600 seconds in an hour, so if you value your time at $18/hour you should imagine a cent ticking away every two seconds, if $36/hour a cent every second, etc.

I've tried to combat this one by imagining the item at a variety of different price points, with the same saving. I don't know how you'd measure how much success you were having, though, because obviously no-one who understood this bias would exhibit it in a formal test setting, only in more informal settings where it's harder to compare. You need some way of mixing it up so you can't just do the sum, but the bias emerges from the noise all the same.

if you value your time at 25 $/hr, then the cost of a twenty-minute drive is 25 $/hr * (1/3) hr = $8.33

Am I the only person who is bothered by the US-centrism of assuming that the cost of fuel is negligible in calculations like those?