How hiding sales tax changes what people buy

A closer look

We all like to think of ourselves as rational consumers, but a few price tags can easily short-circuit our math skills. Economist Raj Chetty ran an experiment in a supermarket where he explicitly included the sales tax on the physical price tags of cosmetics. Suddenly, sales plummeted by 8%. People theoretically knew the tax existed at the register, but hiding it from their immediate vision essentially deleted it from their financial decision-making. It is a psychological blind spot that governments happily exploit every single day.