The Time Traveller's Dog

I am looking for a house at the moment… a major purchase, I admit, and one where I am very conscious of price.  One of my main sources in this search is the Rightmove web site and, as I trawl each day usually to know avail, I find myself reflecting more and more on the search terms I use.  Price is a key one…

I’ve noticed I go up to just beyond my budget in terms of the upper limit, rather than the actual budget.  Guess that’s on the (sometimes true) assumption that the asking price isn’t really what the vendor is looking for, so (s)he will take a discounted price.  Of course, it’s all a falacy. The vendor isn’t really looking for the price stated, so will be smug if accepting my lower offer because that was the “real” price (or thereabouts) all along.  At the same time, I’ll feel self-satisfied too because I’ll feel I got a “bargain” by beating the vendor down on price.  Everyone is happy, we like that!  Assuming I actually find a house worth bidding for, of course.  But does a discounted price always yield a benefit to the purchaser?

Economists have always been aware that consumers associate price with quality.  I once did an experiment in a furniture store where customers rated a sofa as significantly more comfortable when I added a zero to the price tag – seems a £4000 sofa must be more comfortable than a £400 one, it stands to reason, so we experience what we expect to experience.  Nice example of a placebo effect in marketing, and of course the literature abounds with similar ones.

Some interesting experiments by Dan Ariely and his colleagues, however, show that placebo effects can be influenced by discounting effects in negative ways too.  In a paper in Journal of Marketing Research in 2005, they demonstrated quite clearly that the improved ability to solve mental problems after consuming an energy drink (an effect part-real and part-placebo) is less pronounced when the drink is sold at a reduced price.  Specifically, consumers paying the regular price experience an improvement in problem-solving abilities, whilst those purchasing the drink at a discounted price can actually experience a decrease in performance.  Further evidence of my sofa effect, this time by cleverly demonstrating that cutting a price can produce the opposite effect.  Food for thought…

So what does this mean for my current house-hunting?  Maybe my minimum price search term is misguided… If a house is way below my budget, I assume it must have something wrong with it and so exclude it from my consideration set.  Dumb thing to do, really, as I may well be missing the bargain of a lifetime!

As an aside, one of my fun things to do is to deviate from the script when negotiating a price.  I put in a low offer on a house the other week, the vendor initially rejected it, then the estate agent rang back a few days later asking if i’d thought about it.  Presumably she was expecting a revised higher offer.  Boy, was she confused when I offered even less than before for wasting my time… as indeed I was when this time the vendor accepted the lower offer!!!  I didn’t go ahead with the purchase, had second thoughts after comparing it with others in my price range, but this was an intriguing effect that I must explore further experimentally.  Why on earth was my lower offer 48 hours later acceptable, but one £10k higher previously rejected?!?!  Most odd!