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.