Friday, May 25, 2012

Sticky expectations

Via The Atlantic:

If you want to buy a used television, you are in for a world of hurt. As you peruse through the Craigslist listings for used TVs, you may notice something surprising. The prices are kind of high. Do a quick check on Amazon and your suspicions will be confirmed. Lots of people try to sell their used television for more than that same TV would cost brand new.

That doesn't make any sense. No one would ever buy a used TV for $800 when they could buy the new one under warranty for $750. A market like this cannot possibly function properly. What is going on in the market for used TVs?

It turns out, people have very inflated expectations for how much they call sell their used TV. …  Insanely, for some TV models, the median used price is higher than the new market price.

The typical Craigslist TV ad reads like this: "55 inch Samsung HD TV - $1000 . . . We bought this TV in August 2011 at the beginning of the school year for $1500."

The seller thinks: "I bought it for $1500, I'm being very fair discounting it 33% for the next owner." Unfortunately, the seller does not realize that during the 9 months they've been using the TV, it no longer costs $1500 new. Most likely you can buy that TV new today for $1000 or less.

I found this to be interesting in that it confirms my bias that people are either irrational or lack the correct information. What is more interesting is this: Why are they selling their old TV? If it’s because they are getting a new one then they would know that they are selling their old TV for a higher price than a new TV which makes things even more puzzling.

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