Updated: 3 days ago
For more information on making a great car buying decision, please see: Cutting through complexity: A confidence-building car buying approach
As the former lead advisory recruiting partner at a Big 4 consulting firm and for a major university, I had the opportunity to interview many college students. Also, as a trained behavioral economist, I cannot help but think about the many cool things we can learn as part of the high-volume, professional interview environment. This article describes the approach to learning about car-buying attitudes as a byproduct of interviewing for a summer internship.
As a core component of the interviews, I would typically provide a car economics-oriented case study. The interview cases were done over 5 years, from 2014-2019. The interviews were with students from James Madison University. At the time, I was with the accounting, tax, and advisory services firm KPMG.
The own v. rideshare interview case study background:
The case study goes something like this:
“Imagine you get a job in a major metropolitan area, you decide to live 10 miles from your office, and will commute daily. You have a choice of buying a car or using a rideshare like Lyft or Uber. Take me through the business case to inform your decision as to the most economical transportation option.”
They then work through the case and compare the key cost categories and issues associated with each transportation option. As an interviewer, I’m judging the quality of their response, to understand how they structure business problems. For example:
How well did they identify the cost drivers? Especially the less salient costs.
How well did they bring in risk factors (availability, dependability, traffic, etc)
How well did they integrate optionality? (using the car on weekend?)
Were they able to express the case in terms of a basic decision problem. (Benefit v cost tradeoff)
Also, I was careful to qualify the interviewees. That is, I wanted to make sure they did not have some block with exploring both rideshare and car ownership. If there was a concern, we would switch over to a traditional behavioral interview format.
One of the ways I alleviated any concerns was by providing a web address to typical car cost categories. This was provided at the half way point of the interview. Here are some typical reoccurring costs in case you wish to play along:
Fuel. The average cost is $1,681.50, or 11.2 cents per mile,
Maintenance and tires,
Licensing, registration, and taxes.
It was a fun exercise. After a greeting and describing the case, I would leave the room. I would come back about halfway through to answer any questions. I would leave again and then return with about 10 minutes left for the wrap-up discussion. The interviewee would share their analysis of their own v. rideshare business case. They would let me know what they would do and why they would do it. To assess the candidate, I was assessing the quality of their "why they would do it" response.
A note about the interviewing approach: The approach -- periodically being in the room with the candidate and then leaving the candidate by themselves -- did have a purpose. I am attempting to control the effects of a candidate's personality. I recognize:
All people are on a personality spectrum that may favor either extroversion (communication process dominant) or introversion (thinking process dominant).
The nature of a short interview favors an extroverted personality type.
As part of the interview process, we do not assess personality. So we do not know the personality type a student may favor. The interview approach sought to provide the student with at least some time in each of their potentially favored personality environments. To be fair, the student's verbal delivery of their case study perspective is a form of extroversion. I do attempt to put the introvert's mind at ease by letting all the candidates know that there is no way they could know all the information needed to solve this case. My interest is more to understand how they would set up the case, rather than the precision of their conclusion. This is meant as an encouragement to the introvert to feel safe exposing their not fully formed thoughts to me.
Finally, this case study does have elements of my natural "Dad" personality. That is, many first time car buyers do not fully appreciate all the hidden costs of car ownership. I'm hopeful those participating in the interview walked away with a more fulsome perspective on car buying.
Behavioral Economics overlay and outcome:
As a wrap-up question and as a curiosity, I ask the following question: “Assume now you get the data and calculate the case results. After working through the math, it is determined you are economically indifferent. That is, the cost of car ownership is the same as ride-share. Which transportation option would you choose and why?” I let them know there are no right or wrong answers.
Over time, the answers I received are almost split evenly (n=48). That is, about half of the interviewees choose rideshare (n=22) and the other half choose car ownership (n=26). However, the underlying motivation is the same, and it relates to Freedom. I call it the "Braveheart response." (after the Mel Gibson movie about fighting for Scottish freedom)
As part of the response, I asked why they choose as they did. The car ownership crowd likes the freedom to drive whenever they want. The rideshare crowd likes freedom from the hassle of maintaining a car. Not too surprising, as freedom is a powerful motivator. Curious how everyone appreciates freedom but is split on how freedom is defined. Go Braveheart!
It would be interesting to learn how this attitude changes over a longer time period, especially as technology evolves and the potential effects of the pandemic. There are a few limitations of this study.
This was a "natural experiment," very much done in the wild. The students did not know I was keeping track of their responses for anything other than a job interview.
There is likely some selection bias. The interviewees are screened in a way that favors higher GPA students and students with mathematically oriented majors. These were real go-getters. Also, the majority of the students came from the Northern Virginia area and other more populated areas of Virginia. KPMG does encourage minority and female hiring. Though, the screening process is agnostic to race and gender. Race and gender selection is more a function of the population of students available at JMU.
There was not a strictly defined control group. The observed definition difference of "freedom" was across those receiving the case study treatment.
The own v. rideshare interview case study observations:
Why ride-sharing is often discounted as a car ownership substitute: Behavioral economics suggests an important cognitive bias factor driving the ride-sharing / car ownership decision is the salience associated with availability bias.
The biggest expense of a car is a one-time purchase. That purchase may get spread over the habit-forming regular payments of a car loan. Once habituated, these payment activities lack salience. Via the concept of "mental accounting" (Thaler, 2009), car payments tend to be placed in the "need" fixed payment hierarchy accounting bucket (Hulett, 2022) They are not as noticeable. However, getting a unique, asynchronous charge for every rideshare pick-up is very noticeable. These charges tends to be placed in the more available "want" payment hierarchy bucket. In other words, it is the salient act of paying rather than the amount being paid that is psychologically challenging. A related behavioral economics concept is called loss aversion. (Kahneman, Tversky, 1979) Based on human evolution, we are wired to perceive loss as higher than an equally valued gain. As such, a frequent, highly salient ride-sharing charge is like perceiving a frequent, painful loss.
So, it is one thing to do the business case. But even if the business case is overwhelmingly in favor of ride-sharing as a gain, the frequent payment salience loss will still be challenging. This is why having a disciplined decision process is helpful to properly weigh and value the best car decision.
For related citations, please see:
Thaler, Sunstein Nudge, 2009
Thaler, Sunstein Nudge, The Final Edition, 2021
Hulett, Budgeting like a stoic, The Curiosity Vine, 2022
List, The Voltage Effect, 2022
Kahneman, Tversky, Prospect Theory, 1979)
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