by Gary North
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 back.
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 flag.")
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.
Recently, 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 box.
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 box.
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 on http://www.lewrockwell.com. 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.
SOLUTION: AVOID SIZZLE, AVOID FANTASY
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.
AVOID SOYBEAN PATTIES, TOO
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 gone.
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).
February 14, 2004
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