May 11, 2018

Paying a premium for certainty

In response to yesterday’s message (subject “Estimated Price is an oxymoron”), long-time friend of the list Philip Morgan wrote in with a great example of paying a premium to receive a fixed price (shared with permission):

I prefer leasing cars no matter how inferior it is in the financial big picture because I hate paying for car repairs because... of this exact reason. I’m sure I’d be financially “better off” buying a car, paying it off, and driving and repairing it for 10 years or whatever, but I don’t care. Having a car breakdown culminate in the equivalent of spinning the “wheel of misfortune” at a repair shop is such a distasteful experience that I’d rather pay a premium to lease a car, which is the financial equivalent of renting but never owning it. I don’t want to “own” the hassle of upkeep. I know this makes no financial sense. Just keep a savings to cover unexpected repairs and you’ll come out ahead, Philip. That’s what the financial nerds say. They’re right, but I don’t care. It’s irrational, but as a pricing expert you know it’s really not because there’s no universal rationality anyway when it comes to pricing, value, etc. As I reflect on this more it’s clear to me I’m paying a premium for an experience. The experience of driving a car but not having to concern myself at all with repairs or maintenance beyond driving the car to the dealer periodically or calling them if there’s a problem (using a handy button in the car). It raises the question of whether I would buy instead of lease of someone provided a maintenance plan that let me trade unpredictable repair costs for a predictable monthly payment. My answer... maybe. Haven’t given it much thought since there was an option I liked provided at the point of purchase.

Thanks Philip!



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