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What Game Theory Can Teach You About Buying A New Car

information advantage

This is a great article on information advantage and purchasing a car.

The traditional way of purchasing a car puts all the weapons in the hands of the car salesman. You visit a showroom, get acquainted with the guy on the sales floor and learn a little about the options you have.

Then, when you have been warmed up, the salesman asks you, “What will it take to put you in this car today?”

Sadly, the salesman has all the information you really need to set the price. He knows the real costs of different optional extras, the demand for different colours and so on, but you are on the spot now.

So you give him a figure. Perhaps you give him one that is ridiculously low. He looks hurt, maybe he is even a little rude. Embarrassed, you go higher, coming pretty close to your own maximum price.

He goes away, consults his manager, pushes you up a little further. And the deal is done.

You wouldn’t have agreed to the deal if you weren’t willing to take it, of course. But is it the best you could have done? Almost certainly not. He knew what he was doing and you didn’t.

So here’s what you should do. Research the car carefully on the internet and decide exactly what you want.

Determine the colour, the extras, everything. Then, call every dealer within, say, a 20-mile radius.

When they answer, tell them exactly the car that you want. Then inform them that you are calling all the dealers in the area and asking about the same car.

You are going to buy the car at 5pm from the dealership offering you the best deal. You will ring back soon and seek a price — the full price, with nothing at all left to be added on later.

…When the witching hour arrives, you go to the dealer with the best offer, cheque in hand, and pick up your car. If there is any change in the terms, you go to the second-best showroom, although this shouldn’t be necessary.

What has happened here? You have forced the salesman to provide you, in the form of his lowest price, all the information he has about the real cost of the car. The advantage has moved from the dealer to you.

Try it, and you will save thousands of pounds. I have further good news. The insights that produced this method of buying a car can also help you with South Korean foreign policy. Now there’s an additional advantage I bet you hadn’t anticipated.

Still Curious? See what happens when An FBI Hostage Negotiator Buys A Car.

Original source: http://timesonline.typepad.com/comment/2009/09/how-to-use-game-theory-to-buy-a-car.html