Gold, Graduate School, and Non-Buyer's Remorse

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The psychological
phenomenon known as buyer’s remorse is well-known among sellers.
The buyer has his hopes raised prior to the sale. He parts with
his money, secures ownership of the item, and brings it home.
Then, when he uses it the first time, or even before, he has pangs
of regret. "Why did I buy this?" He wants to take it

Sellers have
a rule: "Sell the sizzle, not the steak." People say
they want a steak dinner, but what motivates them is the sizzle,
the dream of that steak. Sellers therefore market what most people
actually pay for: a dream, a fantasy. Automobile ads on TV are
obvious examples. So are cosmetics ads. And as for the race car
driver who recommends Viagra. . . . (I keep thinking "yellow

So, when
the buyer opens his box of sizzle, the reality disappoints. But
even if he bought steak self-consciously, reality intervenes.
It’s choice, not prime.

my wife bought a lightweight mini-vacuum cleaner. It’s called
the Shark. She liked it from the moment she tried it. She said
it is more powerful than the unit it replaced. Then she noticed
an odd item inside the box. It was a piece of thin plastic, maybe
3 inches by five inches by an eighth of an inch. It had a drawn
image of the unit on it. It also had a red button. She pressed
it, of course. What else are red buttons for? Immediately, the
image of the unit shifted to another image, creating the illusion
of movement. A voice came out of a tiny loudspeaker. The voice
lauded the quietness of the unit and its superior power.

Here was
what appeared to be a sales tool. It was placed inside the packaging.
Why did the company pay some Asian factory a dollar (or less)
to include a sales device inside the box? I can think of only
one reason: to prevent buyer’s remorse. It is the equivalent of
the standard post-purchase response letter in mail order, which
begins, "Congratulations! You have just purchased a . . .
which is the most elegant, powerful . . . on the market today!"

If an item
comes with a money-back guarantee, as most retail items do (by
law in mail-order), the seller wants the buyer to keep it. He
doesn’t want the seller to return a now used unit in whatever
remains of the box it came in. Worse, the buyer may refuse to
honor the credit card invoice, telling the credit card company
"the item failed to work." That results in a charge-back
— non-payment by the card company. If a seller gets too many
charge-backs, the card company will cancel the seller’s merchant
account. If he’s in mail order, he’s then in trouble.

Note: Visa
has the reputation of being more reasonable for the seller regarding
charge-backs than a certain unnamed rival card, which is why merchants
usually have Visa as the default option on-line. If you ever start
an on-line business, this bit of information may prove valuable.

So, it’s
not good enough to sell the buyer once. "Once is not enough."
You have to sell him again, after he takes it home and opens the


This phenomenon
is less common and less known in the retail trade. That’s because
the item not bought today is probably still for sale the next
day. The price may even be lower. Some other seller will offer
it or something as good. Or, best-case scenario, a used one is
on eBay at 30% of retail. It may even still be in the original

But some
items are subject to non-buyer’s remorse. Let me take a recent
example. Earlier this week, gold closed for one day slightly below
$400/oz. People who had said, only a couple of weeks ago, "If
gold ever falls below $400, I’m going to buy it." These are
the same people who said, six months ago, "If gold ever falls
below $350, I’ll be a buyer." Did they buy at $399? Of course
not. They got scared. "Gold is headed for $375!"

The next
day, by mid-morning, gold was up by $5. I had checked the price
I called my coin dealer of 40 years, who sponsors that permanent
on-site gold report, just to see what was happening. Nothing was
happening. He had not had one call the entire morning. He told
me this: "People say they will buy if the price of gold falls
below such and such. They never do, unless they’re from the Indian
subcontinent." (I gather that he was including Pakistanis
as well as Indians.) "They get scared."

The person
who had mentally set $399 as his target price missed it. The next
day, it was up by $5 or whatever — a minuscule percentage overall,
though a nice one-day move. Why didn’t everyone who had a mental
price of $399 call and buy? The extra $5 weren’t all that much.
Gold had bottomed the day before. Maybe that was gold’s bottom
this time. Maybe it will never fall below $400 again. In any case,
it had hit $399, and the would-be buyers had not bought.

When it hit
$399, they all thought, "it’s going lower." It didn’t.
But the person now wants to prove to himself that he was not a
fool for not buying at $399. "It will go lower than $399.
Today’s move is a fluke."

The next
day, gold was above $410. Now the person was back to his original
position: "If gold ever falls below $400 again, I’ll buy."
No, he won’t. But he might when it goes above $600. And he almost
surely will when it goes above $1,000.

That’s the
biggest problem with non-buyer’s remorse. The fact that he missed
the boat when tickets were available, cheap, eats at him all the
way up. It drives him to near-distraction. Finally, when late-comers
rush in to buy close to the top, he thinks, "I knew it! I
knew it! I’m going to miss out!" Now he buys at the top.

Buyer’s remorse
is a problem for some people, but they usually get used to the
item after a while. They stop paying attention to it. They’re
dreaming about some new item. But non-buyer’s remorse can last
for years, even decades. "Coulda, woulda, shoulda" eats
at people more painfully than non-sizzling steak does, and for
a lot longer.


Buying a
new car will not make you more virile. It won’t open whole new
vistas of anything except debt. It may let you get from point
A to point B and back without a major repair bill. But it will
not impress any of the girls in the Sports Illustrated
swimsuit issue — not even the 1973 issue.

The great
investment opportunity you just missed will not bankrupt you.
There will be another one coming along soon. If you let non-buyer’s
remorse paralyze you, you will miss it. You may miss several in
a row.

The correct
strategy is to set a goal that seems to be beyond your reach — but
not too far beyond. Then set a date on its attainment. Then set
intermediate goals and dates that will serve as markers, so that
you can assess your progress.

Your biggest
problem here ought to be establishing that goal. You must spend
a lot of time thinking about why it’s worth setting. It had better
be mostly steak and hardly any sizzle. You had better know why
chuck roast won’t suffice. Also, what if you become a vegetarian
in the meantime?

We do this
with respect to school. A student longs for graduation day. He
may also have a grade point average goal in mind. He may have
another level of schooling in mind. But, at some point, he reaches
his goal. We call the most advanced degrees "terminal degrees":
Ph.D., M.D., J.D. They terminate the formal attainment process
in a particular field. Then comes graduation day. "Free at
last! Free at last!"

I know people
who wanted to earn a Ph.D., who did not finish the dissertation.
That status is informally called A.B.D. — "all but dissertation."
It’s a useless status economically. An M.A. is just as good as
A.B.D., and it’s less work and far less disappointing.

What remorseful
A.B.D. people may not understand at first is that a Ph.D. in most
fields is as useless, employment-wise, as an A.B.D. or an M.A.
The Ph.D. glut hit in the spring of 1969, and it has not abated.
American universities have cranked out at least a million extra
holders of Ph.D.s since 1969, because universities are paid by
donors and legislatures to produce graduates, irrespective of
the job market. They do this very well. The losers are the dumb
clucks who spent an extra five years and, say, $100,000 in expenses
to earn the Ph.D., while forfeiting whatever money they might
have earned in the job market. They suffer from buyer’s remorse,
while the A.B.D.s suffer from non-buyer’s remorse. Everyone is
unhappy, except for faculty members with tenure, who can’t be
fired. "We’re just doing our job," they tell themselves.
They never take bright-eyed students aside in the first semester
after the M.A. — let alone the B.A. — and tell them,
"the odds are against you. Quit now. Don’t pour good money
and good years after bad." Why not? Because universities
pay as much to a professor who teaches a class of 8 Ph.D. students
as it does to a professor who teaches a class of 20 undergraduates.
And there’s more prestige teaching Ph.D. students, to whom you
assign research tasks that will aid you in your publishing career.

So, the young
man who sets a Ph.D. as his goal will almost certainly find no
job after graduation that is dependent of his having earned a
Ph.D. This has been known since at least 1970. I read a 1970 Ph.D.
dissertation (Berkeley) in economics by David Breneman that surveyed
the Ph.D.-production process and concluded that the system was
stacked against graduate students. It was the most useful Ph.D.
dissertation I have ever read.

By 1966,
I had known the glut would hit in 1969. The academic world knew
as early as 1965. In an article in Science, New York University’s
president Allan Cartter predicted the looming glut of science
professors. The Chancellor of the University of California had
warned a select group of a couple of hundred students (out of
100,000 enrolled) that the glut was coming in 1969. I was a member
of that group. But I still plodded forward. Graduate students
are like gamblers, always over-optimistic. "It won’t happen
to me." It probably will.


It’s not
just that people aim for sizzle rather than steak. They sometimes
assume that steak will be readily available, when the outcome
of their plans will barely cover the price of Rice-A-Roni.

All over
the West, voters assume that government welfare programs for the
aged will be there in profusion when they finally get to the front
of the line. Politicians assure them that this is the case. Politicians
lie. If they told the truth, the voters would vote for their lying
opponents. Then the incumbents would have to face the harsh world
of becoming high-paid lobbyists and living on their above-market
Congressional pensions. It’s safer to lie.

In my view,
non-buyer’s remorse is a greater threat than buyer’s remorse when
it comes to feasting on Hamburger Helper. That’s because of the
paralysis factor. The road not taken haunts people’s memories.
It almost always appears better than the road taken. Well, maybe
not if you really did hit the jackpot, but most people don’t.
The road not taken becomes a retroactive fantasy. It’s the worst
kind of fantasy, the kind that can never be attained. Reality
never intrudes to show its pock-marked face.

People spend
their lives trying to make up for a lost fantasy, or trying to
get even with a past fantasy. You can’t get even with a past fantasy.
Fantasies only improve with time. That’s why Sports Illustrated
never provides a special feature on "The Girls of 1973 .
. . Today!"

If your vision
is clouded by the fantasy that got away, you are less likely to
focus on the steak that lies ahead. That virtually guarantees
soybean burgers in the future.

At the end
one of the most important books of the last decade, The
Rise and Decline of the State
, Israeli military historian
Martin van Creveld made this grim prediction:

For groups
as diverse as government employees and recipients of social
security (particularly those who hope to receive benefits in
the future), the writing is on the wall. Either they start looking
elsewhere for their economic status and, in some cases, even
their physical protection; or else there is probably no future
for them (p. 419).

Rarely do
we read anything this forthright in a book published by a major
university press. But van Creveld sees that the modern nation-state
has over-promised and over-indebted the voters. There is no way
that the bills can be paid off when they come due, beginning in
the next decade. But most voters are so trusting of politicians’
promises, despite constant evidence to the contrary, that they
don’t take active steps to prepare for the day when the government’s
IOUs cannot be paid off in money of today’s comparatively high
purchasing power.


If all people
could deal with non-buyer’s remorse as easily as they deal with
buyer’s remorse, merely by shrugging off past mistakes and moving
forward, there would be far less paralysis and far less fantasizing
about the past. A fantasy about the past that interferes with
our ability to make realistic assessments of the future, as well
as estimating the cost of reaching it, is a far greater liability
than the realization that some seller stuck you with something
less than the fantasy he implied was sure to come. A shattered
fantasy is less paralyzing than a passed-over fantasy.

For this
reason, it’s best to recognize early that a past cost is a sunk
cost. Once you spend it, the money is gone. The moment you lick
the ice cream cone, you can’t get your money back. The cone may
or may not turn out to be worth the calories, but the money is

Gold at $399
may not be available again until after you finally pony up and
pay $1,000 an ounce for it. What matters is this: (1) What can
you buy it for today? (2) What do you honestly think it will cost
tomorrow? Forget about yesterday. Yesterday can do you no good
(unless you’re Paul McCartney).

14, 2004

North [send him mail]
is the author of Mises
on Money
. Visit
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