How a game theorist buys a car (on the phone with the dealer):
“Hello, my name is Bruce Bueno de Mesquita. I plan to buy the following car [list the exact model and features] today at five P.M. I am calling all of the dealerships within a fifty-mile radius of my home and I am telling each of them what I am telling you. I will come in and buy the car today at five P.M. from the dealer who gives me the lowest price. I need to have the all-in price, including taxes, dealer prep [I ask them not to prep the car and not charge me for it, since dealer prep is little more than giving you a washed car with plastic covers and paper floormats removed, usually for hundreds of dollars], everything, because I will make out the check to your dealership before I come and will not have another check with me.”
From The Predictioneer’s Game, page 7.
Other car-buying tips from Bueno de Mesquita, in case you’re about to buy a car:
Figure out exactly what car you want to buy by searching online before making any contact with dealerships.
Don’t be afraid to purchase a car from a distant dealership—the manufacturer provides the warranty, not the dealer.
Be sure to tell each dealer you will be sharing the price they quote you with subsequent dealers.
Don’t take shit from dealers who tell you “you can’t buy a car over the phone” or do anything other than give you their number. If a dealer is stonewalling, make it quite clear that you’re willing to get what you want elsewhere.
Arrive at the lowest-price dealer just before 5:00 PM to close the deal. In the unlikely event that the dealer changes their terms, go for the next best price.
From my limited experience with buying cars, as well as from theoretical considerations, this won’t work because you lack the pre-commitment to buy at the price offered. Once they give you a favorable price, you can try to push it even further downwards, possibly by continuing to play the dealerships against each other. So they’ll be afraid to offer anything really favorable. (The market for new cars is a confusopoly based on concealing the information about the dealers’ exact profit margins for particular car models, which is surprisingly well-guarded insider knowledge. So once you know that a certain price is still profitable for them, it can only be a downward ratchet.)
The problem can be solved by making the process double-blind, i.e. by sending the message anonymously through a credible middleman, who communicates back anonymous offers from all dealers. (The identities of each party are revealed to the other only if the offer is accepted and an advance paid.) Interestingly, in Canada, someone has actually tried to commercialize this idea and opened a website that offers the service for $50 or so (unhaggle.com); I don’t know if something similar exists in the U.S. or other countries. (They don’t do any sort of bargaining, brokering, deal-hunting, etc. on your behalf—just the service of double-anonymous communication, along with signaling that your interest is serious because you’ve paid their fee.) From my limited observations, it works pretty well.
I have personally purchased Toyotas, Hondas, and a Volkswagen this way. Some of my students at NYU have taken up this method and bought cars this way too… They and I have always beat the price quoted on the Internet with this method.
He further claims to have once saved $1,200 over the price quoted on the Internet for a car he negotiated for his daughter, who was 3000 miles away at the time.
Apparently being a game theory expert does not prevent one from being a badass negotiator.
Typically people describing clever complex schemes involving interacting with many other people do not actually do them. Mesquita has previously tripped some flags for me (publishing few of his predictions), so I had no reason to give him special benefit of the doubt.
Even theoretically, you would then need to have perfect information every single other factor influencing relevant-demographics death rates, assuming you somehow magically know the exact relevant demographics. If there is even one other factor that is uncertain, you end up having to increase your approximation’s margin of error proportionally to the uncertainty, and each missing data point is another power factor of increase in the margin. Eventually, it’s much smarter to realize that you don’t have a clue.
Now, take into account that you don’t even know all of the factors, and that it’s pretty much impossible to prove that you know all of the factors even if by some unknown feat you managed to figure out all possible factors… quickly the problem becomes far beyond what can be calculated with our puny mathematics, let alone by a human. Of course, if you still just want an approximation after doing all of that, it may become possible to obtain an accurate one, but I’m not even sure of that.
He further claims to have once saved $1,200 over the price quoted on the Internet for a car he negotiated for his daughter, who was 3000 miles away at the time.
What does he mean by “price quoted on the Internet”? If it’s the manufacturer’s suggested retail price, then depending on the car model and various other factors, saving $1,200 over this price sounds unremarkable at best, and a badly losing proposition at worst. If it was the first price quoted by the dealer, it could be even worse—at least where I live, dealers will often start with some ridiculous quote that’s even higher that the MSRP.
Having bought/leased a few new and used cars over the years, I immediately think of a number of issues with this, mainly because this trips their “we don’t do it this way, so we would rather not deal with you at all” defense. This reduces the number of dealers willing to engage severely. Probably is still OK in a big city, but not where there are only 2 or 3 dealerships of each kind around. There are other issues, as well:
Bypassing the salesperson and getting to talk to the manager directly is not easy, as it upsets their internal balance of fairness. The difference is several hundred dollars.
The exact model may not be available unless it’s common, and the wait time might be more than you are prepared to handle. Though the dealers do share the inventory and exchange cars, they are less likely to bother if they know that the other place will get the same request.
They are not likely to give you the best deal possible, because they are not invested in the sale (use sunk cost to your advantage)
They are not likely to believe that you will do as you say, because why should they? There is nothing for you to lose by changing your mind. In fact, once you have all the offers, you ought to first consider what to do next, not blindly follow through on the promise.
This approach, while seemingly neutral, comes across as hostile, because it’s so impersonal. This has extra cost in human interactions.
“Searching online” is no substitute to kicking the tires for most people. The last two cars I leased I found on dealers’ lots after driving around (way after I researched the hell out of it online), and they were not the ones I thought I would get.
And the last one: were this so easy, the various online car selling outfits, like autobytel would do so much better.
So, while this strategy is possibly better than the default of driving around the lots and talking to the salespeople, it is far from the best way to buy a car.
How a game theorist buys a car (on the phone with the dealer):
From The Predictioneer’s Game, page 7.
Other car-buying tips from Bueno de Mesquita, in case you’re about to buy a car:
Figure out exactly what car you want to buy by searching online before making any contact with dealerships.
Don’t be afraid to purchase a car from a distant dealership—the manufacturer provides the warranty, not the dealer.
Be sure to tell each dealer you will be sharing the price they quote you with subsequent dealers.
Don’t take shit from dealers who tell you “you can’t buy a car over the phone” or do anything other than give you their number. If a dealer is stonewalling, make it quite clear that you’re willing to get what you want elsewhere.
Arrive at the lowest-price dealer just before 5:00 PM to close the deal. In the unlikely event that the dealer changes their terms, go for the next best price.
From my limited experience with buying cars, as well as from theoretical considerations, this won’t work because you lack the pre-commitment to buy at the price offered. Once they give you a favorable price, you can try to push it even further downwards, possibly by continuing to play the dealerships against each other. So they’ll be afraid to offer anything really favorable. (The market for new cars is a confusopoly based on concealing the information about the dealers’ exact profit margins for particular car models, which is surprisingly well-guarded insider knowledge. So once you know that a certain price is still profitable for them, it can only be a downward ratchet.)
The problem can be solved by making the process double-blind, i.e. by sending the message anonymously through a credible middleman, who communicates back anonymous offers from all dealers. (The identities of each party are revealed to the other only if the offer is accepted and an advance paid.) Interestingly, in Canada, someone has actually tried to commercialize this idea and opened a website that offers the service for $50 or so (unhaggle.com); I don’t know if something similar exists in the U.S. or other countries. (They don’t do any sort of bargaining, brokering, deal-hunting, etc. on your behalf—just the service of double-anonymous communication, along with signaling that your interest is serious because you’ve paid their fee.) From my limited observations, it works pretty well.
I take he does not discuss whether he actually ever did that.
He further claims to have once saved $1,200 over the price quoted on the Internet for a car he negotiated for his daughter, who was 3000 miles away at the time.
Apparently being a game theory expert does not prevent one from being a badass negotiator.
Why did you guess otherwise?
Typically people describing clever complex schemes involving interacting with many other people do not actually do them. Mesquita has previously tripped some flags for me (publishing few of his predictions), so I had no reason to give him special benefit of the doubt.
Maybe many of his predictions are classified because they are for the government?
“I’d love to tell you, but then I’d have to kill you...”
Theoretically could you make an approximation of his accuracy by looking at fluctuations in death rates among relevant demographics?
Even theoretically, you would then need to have perfect information every single other factor influencing relevant-demographics death rates, assuming you somehow magically know the exact relevant demographics. If there is even one other factor that is uncertain, you end up having to increase your approximation’s margin of error proportionally to the uncertainty, and each missing data point is another power factor of increase in the margin. Eventually, it’s much smarter to realize that you don’t have a clue.
Now, take into account that you don’t even know all of the factors, and that it’s pretty much impossible to prove that you know all of the factors even if by some unknown feat you managed to figure out all possible factors… quickly the problem becomes far beyond what can be calculated with our puny mathematics, let alone by a human. Of course, if you still just want an approximation after doing all of that, it may become possible to obtain an accurate one, but I’m not even sure of that.
Thanks for the food for thought, though.
What does he mean by “price quoted on the Internet”? If it’s the manufacturer’s suggested retail price, then depending on the car model and various other factors, saving $1,200 over this price sounds unremarkable at best, and a badly losing proposition at worst. If it was the first price quoted by the dealer, it could be even worse—at least where I live, dealers will often start with some ridiculous quote that’s even higher that the MSRP.
Having bought/leased a few new and used cars over the years, I immediately think of a number of issues with this, mainly because this trips their “we don’t do it this way, so we would rather not deal with you at all” defense. This reduces the number of dealers willing to engage severely. Probably is still OK in a big city, but not where there are only 2 or 3 dealerships of each kind around. There are other issues, as well:
Bypassing the salesperson and getting to talk to the manager directly is not easy, as it upsets their internal balance of fairness. The difference is several hundred dollars.
The exact model may not be available unless it’s common, and the wait time might be more than you are prepared to handle. Though the dealers do share the inventory and exchange cars, they are less likely to bother if they know that the other place will get the same request.
They are not likely to give you the best deal possible, because they are not invested in the sale (use sunk cost to your advantage)
They are not likely to believe that you will do as you say, because why should they? There is nothing for you to lose by changing your mind. In fact, once you have all the offers, you ought to first consider what to do next, not blindly follow through on the promise.
This approach, while seemingly neutral, comes across as hostile, because it’s so impersonal. This has extra cost in human interactions.
“Searching online” is no substitute to kicking the tires for most people. The last two cars I leased I found on dealers’ lots after driving around (way after I researched the hell out of it online), and they were not the ones I thought I would get.
And the last one: were this so easy, the various online car selling outfits, like autobytel would do so much better.
So, while this strategy is possibly better than the default of driving around the lots and talking to the salespeople, it is far from the best way to buy a car.