Using a simple game theory technique, you can save a sizeable sum when buying a car, writes Paul O'Doherty
FOR THE average motorist, buying a car usually involves searching in the pages of various newspapers and on the web, before marching onto the garage forecourts late on a Thursday or early on a Saturday looking for a bargain. It might sound familiar but there is an alternative that claims to guarantee better value to the buyer: the Bruce Bueno de Mesquita way.
Not quite in the sense that Bueno de Mesquita, professor of politics at New York University and a Senior Fellow at the Hoover Institution at Stanford University, and game theory specialist, uses classic game theory techniques to save money every time he buys a car.
It seems too easy not to invite scepticism, but Bueno de Mesquita maintains it has never let him down. “I’ve used the following strategy to buy eight or nine cars in the past saving myself thousands of dollars. It’s also a strategy that my students use all the time, saving them decent amounts they can turn towards their tuition. Basically, it’s game theory, a fancy label for a pretty simple idea: that people do what they believe is in their best interest. That means they pay attention to how others might react if they choose to do one thing or another.”
As a starting block, Bueno de Mesquita looks at the traditional model. He maintains that by arriving at a dealership or showroom you are sending out a “costly signal” to the salesperson that you want to buy and there’s a good chance you’ll buy from him. While this gives you credibility as a serious purchaser, the salesperson sees it as eagerness.
Once you start a conversation with the salesperson, most people tend to give away far too much information, with the salesperson telling you very little that’s valuable in return.
By the time you get down to price, the salesperson can easily manipulate the negotiation because he knows exactly how much the car is worth – it’s his job – and has a fair idea how much you’re prepared to pay.
So, what should you be doing? Well, he recommends the following. To begin with, do the traditional homework and decide exactly what car you want to buy, the price you want to pay, the safety considerations, its performance, judging, for instance, style over comfort or whether you really want to pay a premium for a particular colour.
Once you’ve made your choices, go online and find every single dealer or showroom that has what you want for the price you want to pay. Then ring each one and tell them the following: “At 5pm today, I want to buy a car (Mazda, Ford, Fiat, or whatever). I am calling every dealership within a 50-mile radius of my home and I am telling each of them what I
am telling you. That is, I will come in at 5pm today with a cheque to buy a car from the dealer who offers me the best price.”
Finishing the call, you also tell the salesperson that you will be telling the next dealer the price you’ve been quoted from them.
This, of course, gives the salesperson one shot as selling you the car at their best price. Every time you ring a subsequent dealer you quote them the best price you’ve gotten so far.
He acknowledges that dealers don’t like getting these calls, and will probably try to fob you off with a response like “you can’t buy a car like this over the phone” to which your response should be, “well, I’ve done this before. So, maybe I can’t buy a car over the phone from you, but I know I can from others”. Bueno de Mesquita adds that you might get a negative response from the odd dealer keen to get you to their forecourt, but in the main most will be grateful for any opportunity to sell.
Still seems too easy to be true? Well, bear this in mind. Away from the triviality of driving the car sales fraternity nuts, the professor’s day job as a game theorist, when he’s not teaching, is working as a consultant in procedural forecasting, political economy and international security policy.
The CIA and US government regularly ask his opinion on what the terrorist threat is likely to be from North Korea or what Iran will want to do with atomic energy. So, when he turns his attention to game theory strategies on how to buy a car, it’s time to listen up.
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On trial Does the game theory method work on Irish dealers?
LISTENING TO Bruce Bueno de Mesquita admit he has been involved in over 1,000 predictions for the CIA, how he could have saved Arthur Andersen from the Enron debacle and hear him laugh over Mobutu’s offer of millions if he could only calculate how the Zairian despot could stay in power, it’s easy to be sceptical of Bueno de Mesquita’s method of buying a car.
So, we put it to the test: our goal was to see what sort of discount we could get if we tested the market for a Ford Mondeo 1.8 petrol saloon with around 50,000 miles on the clock, preferably in metallic silver for less than €9,000.
I pitched my wits against the car dealers of Ireland, trying to buy a car the Bruce Bueno de Mesquita way.
Picking out five cars on the internet that fitted the criteria, I started in Dublin, rang the first dealership on my list and gave the salesperson the following spiel.
“Hello, my name is Paul O’Doherty, I need to buy a car urgently. At noon tomorrow I will walk into a dealership with cash to buy a 2005 Ford Mondeo 1.8 petrol saloon with around 50,000 miles on the clock from the dealer who offers me the best price. You are the first person I’ve rung and I have four others on my list. What’s your best price?”
On the website the price quoted was €7,950 and after shovelling a few papers, the dealer quoted me €7,750, down €200. Telling the dealer I would be back to him if it was the best price, I rang the next number on my list.
It was a Dublin number. With a mileage the wrong side of 50,000, the price tumbled from €9,950 to €8,950 before I could finish my sentence, going to €7,500 a second later.
Next up was a Cork number. Going with the same patter, this time quoting the last price as my best price so far, the dealer capitulated almost immediately, from a website price of €8,950, going south to €7,500, and then to €7,250 when I squeezed for a better price than I’d been quoted one phone call earlier.
For the fourth phone call I rang a Cavan dealer, who had a hatchback model rather than a saloon. His price was €8,500.
Would he budge? “Possibly. Would he beat €7,250? “No chance.” Was that his final offer? “Definitely.”
Lastly I rang a Kildare dealer with an opening price of €6,900. Delivering what I had to say, the best price returned was €6,750 with the final warning that this price wouldn’t be beaten. And, in fairness, it wasn’t.
Summing up, the Bruce Bueno de Mesquita way certainly cut through a lot of the haggling and allowed me to sidestep the obvious “well, how much are you offering?” or “you’ll have to call in and see us”.
It also got me to the nitty-gritty of price much faster, and all from the comfort of my own home, saving in one case €2,450 off the opening price.
Not bad for less than 10 minutes’ work on the phone. However, whether I was the recipient of some kickback from Bueno de Mesquita’s teach-in or the eloquence of his game theory spin, or an unexpected someone with cash to buy a car in an idling market, I’ll never know.
Having said that, if you’re planning to buy a car soon, it certainly beats going out in the cold on a Thursday night or early on Saturday morning with a shopping list that’s all over the country, into a cauldron that pits you at the mercy of the dealer.
As a gambit therefore, buying a car the Bruce Bueno de Mesquita way is certainly worth a punt.
– Paul O’Doherty
