Mini Episode 6 - Why won’t anyone pay me what my car is actually worth?

Sophia in Glenelg wants to know why nobody seems willing to 'pay the cost to be the boss' of her "really awesome little Mazda".

Dan: 00:17 Hey, and welcome to Bad Decisions. Mini episode six, I'm your host, Dan Monheit. And if you're new to this format of the show, this is where I do my best to get to the bottom of your wild and wonderful questions about why we do the things that we do. Today's question is from Sophia. What do you got for us?

Sophia: 00:35 Hey, Dan, Sophia here tuning in from not so sunny, Glen Elk. So I've been working from home for a while now and with what I've been doing, I've realized that I don't really need my car anymore. So I've been trying to sell it. It's a really awesome little Mazda, but nobody wants to pay what it's actually worth. I mean, what I'm pretty sure it's worth. Got any ideas?

Dan: 00:55 All right. So, so Sophia, let me just start here by saying, I really do. I feel you on this. I've had my heart broken so many times selling things from my first Jeep Wrangler to a as new iPhone 11 to my never dropped, never crashed, never raced carbon foam road pie. It doesn't seem to matter what it is. The process is the same, right? We come to the, to the tough decision that it's time for us to part ways. We then go and spend hours doing the research. We crop the photos. We write the spectacular copy. We decided on a fair and reasonable price. We put it up on whatever our website of choice is. And then nothing. You know, if we're lucky, we might get to waste a couple of hours with some tie kickers, maybe even get our egos bruised with a couple of offensive today only.

Dan: 01:47 Cash only, low ball offers, but at the end of the day, nothing ever really seems to go to plan what is going on here? I think what's going on here is something called the endowment effect. Which is our tendency to believe that something is worth more simply because we own it, right? We think we're pretty awesome. If we own this thing, it must be worth quite a bit. Right? And what that means is that whatever we think something is worth, is precisely that what we think something is worth. There's a bunch of research done into the endowment effect through the mid 1990s, by the dream team of Conaman Niche and Thaler. And they ran a series of experiments that took a really similar format. What they would typically do was go into a university lecture, randomly split the room into two groups, assign one group as the buyers and the other group as the sellers. Though, then give half of the room as sort of inanimate objects.

Dan: 02:39 So it might've been a pen or in the example, I'm going to talk to you about today. It was a mug, right? So half of the room gets mugs. The other half of the room gets bupkis. Right now, they get to hang onto the mugs for a little bit of time. And then they go and survey the students to the students who have received the mugs. They are asked, what is the minimum price you would accept to part with that mug that you now have in your possession? To the group that didn't get the mugs they will ask, what is the maximum price you would pay to obtain one of those shiny mugs that your lucky colleagues received that you didn't? What they consistently found was that the price people wanted to receive in exchange for their mug was around twice as high as what people were willing to pay to get one.

Dan: 03:23 So in one particular example, the average highest buy price was $4.20. In the same study, the lowest average sell price was $8.40, right? A two to one ratio. We value something twice as much simply because we've owned it. Now, this makes sense from an evolutionary perspective, I guess for most of human history, most resources were scarce or difficult or dangerous to come by. So valuing or protecting what we have undoubtedly kept us safer for longer. And while today, most things are not that scarce and not that dangerous to get, you know, we live in a wonderful world of abundance. That the bias of wanting to overvalue, what is ours seems to have endured. And that is why nobody's willing to pay you precisely what you think your car is worth, right? Because they don't own it yet. You do. I guess for brands, the key takeaway here is to try and make it easier for people to feel like something is theirs before it really is.

Dan: 04:18 So this could come from things like free trials, test drives, light versions, co-design whatever it is. Just know that if you can get somebody to feel like this is already theirs, walking away from the opportunity to buy it is going to feel far more painful and be far more difficult than if it never felt like it was theirs in the first place. So I hope that answered your question, Sophia. I hope you get a cracking price for that car of yours and you put the money to good use haggling, somebody else down on something else that they clearly think is worth way more than it is. And if you guys got any more questions about the weird and wonderful things that we do, please shoot them through to either ask dan@hothat.com that I, you, or you can find me on the internet at them on hot. It's been real, and we'll see you for the next question in a couple of weeks. See ya.