In the Valley of Sunk Costs
Jul. 12th, 2004 02:48 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
drscottDaily life is illuminated by the understanding of economics and game theory.
Yesterday I went to Target with a long shopping list. I filled my cart with useful stuff -- a carpet runner for the spot next to my bed where I stand with sweaty bare feet when changing clothes, toilet paper (20 extra-dense rolls for $10), sugar-free gum for a year ($1 for an 8-pack, half the list price), handy towels, mouthwash ($1.69 for a larger size than Safeway's $4 bottle). Annoyances mounted; they were all out of my favourite cereal, Fiber One. The main reason I went was to replenish my stock of this high-fiber, low-carb wonder product. Then I checked out, handing the Asian checkout lady my coupons, total value $2.50; she said, "Coupons? No problem!" After signing the credit card charge slip, she waved the coupons at me, saying "I forgot to scan them -- just go to customer service, they'l take care of you."
Okay, off to Customer Service, which is actually labelled "returns and exchanges." Four people are standing in line there with multiple items to return, looking vaguely unhappy. Something snapped in my head, and I went into Avenging Economist Mode.
There's a large body of economic literature on negotiations and game theory. Most transactions are routine and between parties who have made many such transactions before; thus the understanding of what will occur, the price, and the terms are clear to both parties and enforced by the understanding that any deviation will damage the relationship which has been beneficial to both. Great hazards for the unwary exist when one party is disadvantaged, typically because they have little experience with this type of transaction while the other party makes its living that way. For example, the car salesman works with hundreds of customers every year, while for the customer this is a once-every-few-years deal at most. Many of the games played by car salesman, real estate agents, and other disreputable folk involve taking advantage of a consumer's sunk costs in the transaction; the goal of the selling agent is to cause the consumer to invest as much time and energy in the transaction as possible before revealing hidden costs or undisclosed flaws in the product, by which point the consumer must eat the effort already invested if the only alternative to accepting the new deal is to walk away.
So while in theory one could: 1) wait in line; 2) announce that, to protest the apparent store policy to make customers wait in the return line to correct any cashier errors, you are returning all of the items purchased; and 3) Wait while they apologize and have a long discussion about the idiocy of the store's policy, in practice it saves a lot of time to throw your reciept at the service worker, announce you won't wait in line to correct a cashier's mistake, and stomp out muttering obscenities.
Yesterday I went to Target with a long shopping list. I filled my cart with useful stuff -- a carpet runner for the spot next to my bed where I stand with sweaty bare feet when changing clothes, toilet paper (20 extra-dense rolls for $10), sugar-free gum for a year ($1 for an 8-pack, half the list price), handy towels, mouthwash ($1.69 for a larger size than Safeway's $4 bottle). Annoyances mounted; they were all out of my favourite cereal, Fiber One. The main reason I went was to replenish my stock of this high-fiber, low-carb wonder product. Then I checked out, handing the Asian checkout lady my coupons, total value $2.50; she said, "Coupons? No problem!" After signing the credit card charge slip, she waved the coupons at me, saying "I forgot to scan them -- just go to customer service, they'l take care of you."
Okay, off to Customer Service, which is actually labelled "returns and exchanges." Four people are standing in line there with multiple items to return, looking vaguely unhappy. Something snapped in my head, and I went into Avenging Economist Mode.
There's a large body of economic literature on negotiations and game theory. Most transactions are routine and between parties who have made many such transactions before; thus the understanding of what will occur, the price, and the terms are clear to both parties and enforced by the understanding that any deviation will damage the relationship which has been beneficial to both. Great hazards for the unwary exist when one party is disadvantaged, typically because they have little experience with this type of transaction while the other party makes its living that way. For example, the car salesman works with hundreds of customers every year, while for the customer this is a once-every-few-years deal at most. Many of the games played by car salesman, real estate agents, and other disreputable folk involve taking advantage of a consumer's sunk costs in the transaction; the goal of the selling agent is to cause the consumer to invest as much time and energy in the transaction as possible before revealing hidden costs or undisclosed flaws in the product, by which point the consumer must eat the effort already invested if the only alternative to accepting the new deal is to walk away.
So while in theory one could: 1) wait in line; 2) announce that, to protest the apparent store policy to make customers wait in the return line to correct any cashier errors, you are returning all of the items purchased; and 3) Wait while they apologize and have a long discussion about the idiocy of the store's policy, in practice it saves a lot of time to throw your reciept at the service worker, announce you won't wait in line to correct a cashier's mistake, and stomp out muttering obscenities.
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Re: Days long gone
Date: 2004-07-12 07:27 pm (UTC)The thing about this is that it's counterproductive. The people who are most likely going to have an error during checkout are the ones with shopping carts full of items -- but these are also the people who tend to be profitable for the store. By making it less convenient for the best customers, they shoot themselves in the foot.