Cutting through complexity: A confidence-building car buying approach

Updated: 3 days ago

Buying the best car by being your own choice architect

This article explores the car-buying process and helps people make the best car-buying decision. As background, I’m an academically trained economist with experience in behavioral economics and risk management. Also, I have led lending organizations, lending-oriented consulting practices, and choice architecture* companies.

(* "Choice architecture" is also known as "Decision Science.")

However, nothing motivates me more to provide the best car-buying outcome than helping my young adult children and other people buy cars. The majority of us buy cars so infrequently, that a refresher will be helpful prior to your next car-buying experience.

Let’s face it, many consider the car buying process as a sore subject, right up there with visiting the dentist. Car buying is complex. Automobile costs are high, so it is important to decide on the best car. Our decision preferences are often a jumble of emotional and objective considerations. How we weigh our preferences are not always clear. The data used to compare alternatives is not always easy to obtain. Car financing alternatives just add more complications.

A less-than-optimal car buying decision is often a result of being unclear about our preferences. Economists focus on demand and the best price for a good as being a product of our aggregated preferences. Our aggregated preferences are also known as utility. The problem is, understanding our own utility, that is, “what is important to us,” is naturally difficult for ALL people. It is a result of our evolutionary biology that makes many modern economic decisions very challenging! This article shows you how to improve upon your evolutionary biology. This article provides a process, tools, and resources that lead to a confidence-inspiring understanding of our own utility when it comes to cars. This occurs by revealing our own preferences and leads to making the best car-buying decision.

We recognize you have choices when defining your own utility and those choices may evolve over time. As such, we provide suggestions and examples for defining utility in a way that maximizes your long-term financial wealth.

In our companion article, we discuss what may happen if we are not clear about our utility. Not being clear about our own utility may lead to economic discrimination. Please see our article for a deeper dive: The subtleties of lending discrimination. Spoiler alert: Anyone, regardless of background, can find themselves on the short end of economic discrimination.


Decision-making best practice: When making any significant purchase, a decision-making best practice is to design your own decision environment. Initially, this means spending a little time specifying your buying road map and buying process. Being your own “choice architect” is very helpful for achieving the best outcome. Broadly, most sellers today have their own customer-facing choice architecture. Think of Tesla, Amazon, Netflix, your favorite restaurant, or a company 401k provider. All of them have tools (like websites, smartphone apps, menus, etc) to help you make a decision. The challenge is, and studies show [i], the seller's choice architecture is designed to help them maximize profitability or some other objective. The best choice for the seller does NOT necessarily provide the optimal outcome for you.

Also, most companies have dedicated departments to maintain their own choice architecture for making significant purchase decisions. These decision process departments may be called by different names, such as “Procurement” or “Strategic Sourcing.” If companies are willing to spend millions on choice architecture, shouldn’t people consider choice architecture for their significant decisions?


To cut through the complexity below is a car-buying road map and choice architecture. The choice architecture allows you to take control of your car-buying process. Think of this article as providing a road map with convenient “You Are Here” pins along the way. We also provide "Dig Deeper" choice architecture resources. You may dig deeper when you are ready for that part of the process. This approach provides the confidence [ii] you will have a positive car buying experience and achieve the best car buying outcome!

Resources mentioned in the article

In addition to the car-baying decision process and tools, curated information and access to financing are key considerations to making the best decision. Next are sample resources to consider for your car-buying experience.

Choice architecture tools:

Other data and financing sources:

Auto lenders:

Auto lender aggregators:

Auto data search aggregators:

Author's disclosure: I have worked with all these resources in the past and feel comfortable mentioning them as an example supporting this article. Your actual experience may vary.

Step 1a: Anchor your purpose - WHY buy a car? Approaching car buying with the proper mindset and motivation is VERY important. We recommend sticking to objective car-buying utility statements like “I need a car for safe transportation.” Try to avoid emotional or less objective car utility statements like, “Because I like the technology,” “I like how it handles,” “I like how fast it goes,” “I like the color,” or “I like the smell.” Use your objective “why” statement as your decision beacon. As you go through the car buying process, you will face choices laced with uncertainty. Use your beacon to mediate those uncertainties. Even if you decide on a more emotion-grounded car-buying utility statement, our approach will help you optimize your car-buying experience.

Dig Deeper: Please see our article Good decision-making and the nuances of accuracy and precision for how an accurate car-buying utility mindset reduces bias and optimizes your car-buying experience.

Step 1b: Anchor your purpose - WHAT is the best transportation option? Do you even need a car? I know, this may seem obvious. But bear with me for a moment. Consider ride-share and public transportation as viable economic substitutes for car ownership. We encourage you to build a simple business case. Even if you decide car buying is the way to go, the process of validating your car buying need will be helpful in learning car ownership costs. You will likely be surprised by the many hidden and cumulatively significant costs of car ownership. These more hidden costs of ownership lack what behavioral economists call "salience." Our brains naturally and inappropriately discount less salient costs. This knowledge provides the power to best manage your car's cost of ownership.

Dig Deeper: See appendix 1 for our business case experience when comparing rideshare to car ownership. We also explore how typical cognitive biases impact attitudes.

Step 1c: Anchor your purpose - WHEN is the best model age for a car? How to minimize depreciation risk. Assuming car ownership makes sense and is aligned with your car buying objective, a high-priority goal should be to minimize exposure to depreciation risk. The vast majority of cars depreciate. (I.e., go down in value over time.) Differing auto models have unique depreciation performances. Also, buying an older car helps reduce the depreciation risk. This occurs since the typical car depreciates quickly when it is newer and the depreciation curve flattens as the car ages.

Dig Deeper: See appendix 5 for the typical depreciation curve and the market considerations for buying a car.

Now that you have set your purpose-guiding anchor, it’s time to clarify your costs, preferences, and car budget.

Step 2: Evaluate preferences and comparable costs - Your objective should include buying a car to optimize the “cost per remaining mile” or "CPRM." The CPRM starts by assuming a standard useful life of 120k miles. That is, a standard useful life you expect regardless of the car you buy. You can adjust this based on your need. Then, consider car buying alternatives minimizing the expected remaining mile cost after considering your highest weighted preferences. Your alternatives should be presented in a manner to help you trade off your car type preferences while minimizing your CPRM-related costs. This approach does guide you toward older, lower-mileage cars. Certainly, you may have preferences for newer cars. The CPRM approach still helps if you prefer newer cars.

Dig Deeper: Appendix 2 shows an example of how the CPRM approach was able to minimize upfront costs, provide safe transportation and provide significant long-term value. Attached is a spreadsheet that helps you use CPRM, plus it helps you collect and sort your car-buying alternatives. Below, we share a car buying decision app to help you weigh your car buying preferences (aka, criteria) and organize your CPRM-related costs.

Step 3: Car loan pre-approval - This is the stage to determine if a loan is needed and if so, to arrange your financing. Prearranged financing is important BEFORE you have a discussion with a car seller. We will discuss negotiations further in the article. Getting pre-approval is the critical first step to building a strong negotiation position. By the way, some banks have different names for their auto loan “pre-approval” program.

Dig Deeper: Appendix 2 describes the auto financing pre-approval process.

Now that you have clarified your costs, preferences, and car budget, it’s time to prioritize and negotiate your car-buying alternatives.

Step 4: Developing car buying alternatives - starts with cars with a good maintenance history. First, in the world of negotiation, another name for a "car buying alternative" is a BATNA. A BATNA is an acronym for "Best Alternative To A Negotiated Agreement.” You always want to build a portfolio of multiple alternatives to build your negotiating position. The purpose of a BATNA is important for our negotiation psychology [iii]. If one car does not work out, it should not feel like a "big deal" to go to the next car alternative on the list. You never want to feel “boxed in” to a particular car.

Car alternatives with good maintenance histories demonstrate a lower cost of ownership. This car-buying workflow program has several model suggestions. From my experience, you may want to minimize factory-provided car technology. Car tech falls under the "hidden cost" category mentioned earlier. Car tech is expensive to buy, expensive to maintain, and your smartphone with a car radio Bluetooth connection likely has much of the needed navigation. Plus, your smartphone is likely a more reliable technology server. Why pay for tech twice?

Dig Deeper: Please see our article Negotiating success and building your BATNA for negotiating tips and the importance of building car-buying alternatives (aka, BATNAs). Also, please see appendix 3 for how pollution may be considered when buying a car.

Step 5: Curate your car data - Finally, it is time to visit the car seller! You now have a rank-ordered list of preference-weighted and lower CPRM cars that are within your budget. Start at the top of the list. Your primary mission when discussing a specific car with a seller is to validate the information. Validate key car information and the highest weighted preference information as revealed in step 2. This information may have been originally provided on websites, car buying aggregators, provided by salespeople, or related. While information providers like TrueCar or others attempt to monitor and oversee the car data providers, the data is not always accurate. If using the app we discuss, you may use it like a little decision concierge that you update as you go along this validation step. Next, we discuss a pre-purchase inspection. This is a key step for data curation.

Dig Deeper: Please see appendix 4 for a process to help you curate car buying information.

Step 6: Obtain a pre-purchase inspection - If all the information validates so far, now it’s time to go on a test drive. The purpose of the test drive is: a) to confirm you like how it drives and that the car meets expectations, plus b) to drive it to a trusted mechanic for a used car inspection. (Step 6b is not usually necessary for new cars) This is the final step when you are pretty sure a particular car alternative is the one. You will likely need to pay a small inspection fee and it is worth every penny! At this point, the prospective car should meet your CPRM needs, your total cost needs, and other preference criteria discussed in the article. The decision tools suggested in this article help you to be confident this car is the one! This is the final preparatory step. You are now ready to negotiate with the car seller and close the deal.

Dig Deeper: Please see appendix 4 for the process including leveraging the inspection information to negotiate with the seller. It is still ok to walk away at this point. Remember, you have other alternatives! I have done it before when the inspection turned up a "deal killer."

Step 7: Negotiate and close like a pro! This individualized choice architecture is designed to provide negotiation confidence. Determining the best car alternative and negotiating with the seller is a game of information leverage. If you follow this car-buying process, your negotiations will feel confident and natural. Below, we suggest tools to help you take control and obtain information leverage. Your CPRM and preference information from your other alternatives will help you confidently understand your negotiating "walk away price." The suggested tools enable you to architect and control your own decision process. You got this!

Electric Vehicles

Finally, you may ask "Does this approach work for electric cars, like EVs?" The answer is "Absolutely!" You will need to adjust the car models we suggest in the linked car buying workflow. EV technology is advancing rapidly. Unfortunately, used EV car batteries may not last as long as newer EV car batteries. I would be sure to understand the likely battery life and any remaining battery warranty. As of the writing of this article, when using the CPRM method, I've found that used EVs are not as cost-effective as ICE. (Internal combustion engine cars) Through a combination of rapidly improving technology and government incentives, I expect EVs to quickly come down the marginal cost curve over the next decade.

Dig Deeper: For more information on Electric Vehicle alternatives, please see the article The Best Used Electric Cars.

Car buying support

There is certainly more to buying a car than cost. You will also need to weigh your many preference factors. Such as model type (sedan, SUV, coupe, etc), size and type of the engine, handling performance, color, storage, technology package, and many others. Our brains have some amazing strengths, the preference weighting process is NOT one of them. Multiple criteria, costs, and multiple car alternatives create a burden for our brains to process. This is especially true since car buying is infrequent. For those in the car business, they train their brains to handle these decisions. For the rest of us, the volume of information and lack of process transparency may create confusion and a lack of confidence. This article and related “Dig Deeper” sections provide several decision resource suggestions.

Car buying decision apps are like “pocket confidence!” It is reassuring to know where you stand and when to walk away from a car sales negotiation.

Dig Deeper: Good news! There is affordable decision science-enabled apps available to help! I suggest using simple and effective decision apps to help you weigh and order your preferences, costs, and car alternatives. I‘ve used Definitive Choice in the past. This app provides a convenient way to enter and weigh your car preference criteria, then, enter your potential car purchase alternatives and their CPRM. Behind the scenes, it uses decision science to score each of your car-buying alternatives. Ultimately, it gives you a rank-ordered report to help you understand which car alternatives will give you the biggest bang for your buck. Using a decision support app will 1) save you time, and 2) increase your decision-making confidence!

Please follow this link for our Car Buying Workflow.



1. Attitudes toward car ownership and ride-sharing:

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. As a core component of the interviews, I would typically provide a car economics-oriented case study. 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.

While I do not provide the interviewees with the car cost categories, 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,

  • Finance charges,

  • Depreciation,

  • Insurance,

  • Maintenance and tires,

  • Licensing, registration, and taxes.

See How Much Does It Really Cost To Own Your Car?

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 split evenly. That is, about half of the interviewees choose rideshare and the other half choose car ownership. However, the underlying reason is the same, and it relates to Freedom. I call it the Braveheart response. (after the Mel Gibson movie about fighting for Scottish freedom)

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.

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. They are not as noticeable. However, getting a unique, asynchronous charge for every rideshare pick-up is very noticeable. In other words, it is the salient act of paying rather than the amount of that paying that is psychologically difficult. A related behavioral economics concept is called loss aversion. 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 thinking like a stoic may be challenging but is often very rewarding! (See Thaler, Sunstein Nudge, The Final Edition, 2021

List, The Voltage Effect, 2022

Kahneman, Tversky, Prospect Theory, 1979)


2. Comparison example, purchase with cash or financing:

Think of CPRM as an approach to common-size the remaining useful miles of different car purchase alternatives. It is a simple metric that makes different cars comparable. To see the CPRM approach in action, my son used his savings and paid $5,000 in cash to buy a used 2006 Kia Optima. He bought it in 2016. As of this writing, the car is still serving him well! As shown in the "Car Buying Workflow" link / "Auto economics" tab, buying a car could save you $2,200 per year and provide the equivalent of $500,000 for retirement.

In appendix 4, we offer car-buying best practices. These practices will provide confidence in your car-buying decision! This article approach is meant as a discipline to quickly weed out the car seller “posers” and provide you with high-quality car purchase alternatives. Think of this as an approach to combine your “what’s important to me” criteria, along with a comparable CPRM cost measure. This is combined with your total cost budget constraint and presented to you in a way to make the best decision. Weighing your car buying preferences (like model type, engine size, color, technology package, or others) is important to combine with your CPRM preference. As a pro tip, start with the lower CPRM alternatives that meet your car buying preferences. That way, if the car meets your preferences and total budget, you will finish the process faster and with less effort. This process is relevant for new and used car buying.

Definitive Choice provides a convenient app to identify and weigh your car preferences, plus add CPRM data. It tracks and orders your criteria and alternatives to help you get the most out of this process.

Not using a choice architecture app or similar solution may cause challenges for accurate preference assembly and preference weighing. Behavioral economists and decision scientists, like Eric Johnson mentioned in the first note [i], consider both "Assembled Preferences" and "Plausible Paths" as key stumbling blocks for making a decision. There are many naturally occurring cognitive traps known as cognitive biases that make evaluating your preferences a challenge. Without going into specifics, a significant challenge is we do not generally realize when these biases are impacting our decision-making. That is why it is important to use choice architecture tools geared toward helping you, the chooser, make the best decision.

Obtaining financing: As noted earlier, car financing should be avoided or minimized if possible. The long-term financial impact is significant. We certainly recognize auto lending may still be a practical reality for many people. As such here is our auto financing approach:

  1. In appendix 4, we provide best practices for identifying a car. As you initially research, you will determine the kind of car and price range you are targeting. Remember using an objective car buying statement like “For safe transportation” is important. Seek to avoid a “How much payment can I afford” objective. Make the payment an outcome of the objective process. This mindset helps minimize the potential long-term negative financial impact.

  2. Based on 1), get a loan qualified before visiting car sellers. This is another important step in building your negotiation position. The Bankrate Monitor and LendingTree have a selection of direct auto lenders. Today, large auto lenders include Capital One, Bank of America, and Truist. Also, many credit unions offer direct auto loans. Large credit unions include Navy Federal and PenFed. Check a few lenders and find the lowest rate and shortest-term loan possible.

  3. Some auto dealers provide indirect auto loans through their bank network. You may certainly consider dealer financing as an alternative, but it is best practice to have your funding confirmed prior to going to the car seller.


3. Thoughts on pollution:

Our car-buying approach is helpful for the environment.

From a strictly economic standpoint, car pollution like carbon monoxide emissions is a negative externality. This means the economic activity of driving a car creates a cost to an unrelated third party. In this case, this third party is society at large. Pollution can also be considered in the economic context of the “Tragedy of the Commons.”

According to The Economist,

“Today only 22% of the world’s greenhouse-gas emissions are covered by pricing schemes, and those schemes are not joining up”

In the case of the model presented in this article, costs fall under “Maintenance and lower cost of ownership.” Since pollution is not a direct cost, it is not overtly considered here. The good news though, pollution is considered in the “Remaining Miles” / CPRM calculation and the “Safe Transportation” car buying utility statement. This occurs because, generally, smaller cars and smaller engines provide safe transportation, have lower remaining mile costs, and are less likely to pollute. Thus, the CPRM approach is aligned with providing lower pollution alternatives. The CPRM approach will recommend cost-effective EVs as well.

Notwithstanding The Economist’s comment, it would not surprise me if the future pollution-related cost of ownership becomes more of a direct cost pricing scheme through carbon taxes, low carbon emission tax incentives, and related cap and trade schemes. It is my hope society is able to appropriately account for environmental costs. We are running out of time.


4. The car-buying approach:

In the pandemic-impacted world, car prices have increased significantly. Also, some car dealers "fudge" or withhold information found on car marketplaces like TrueCar and (Another example of "the tragedy of the commons!"). This may make comparison shopping more difficult or confusing.

By the way, “sludge” is what behavioral economists call excessive friction that makes it more challenging for people to do what they want to do. Certainly, an auto dealer purposefully obscuring necessary car-buying information is very sludge-like! Data fudging is a practice I observed with some auto dealers. This certainly does not imply all used car dealers are “sludgy.” It is important to beware.

In our article The subtleties of lending discrimination, we suggest the following approach provides the added benefit of reducing economic discrimination. It is important to appreciate that economic discrimination is not necessarily race-based. Economic discrimination may occur to anyone.

Car buying best practices

  1. Build multiple credible used car purchase alternatives before leaving to inspect cars in person. The linked car buying workflow and the car decision-making app are good resources to organize your alternatives. Inputting the used car data from marketplace apps is a good starting place. If auto financing is needed, now is the time to line up an auto loan. You should strive to start with around 10 alternatives. See appendix 2 for related information. There is certainly more to buying a car than cost. You will need to trade off or weigh many factors. Such as model type (sedan, SUV, coupe, etc), size of the engine, handling performance, color, storage, technology package, and many others. You may use helpful decision software to help you weigh your alternatives.

  2. Developing BATNAs when negotiating is critical. In the negotiation process, always: a) let the auto dealer know you will be comparing several cars from several dealers. b) be respectful c) ask lots of questions, and d) most important, be willing to walk away. In this article, we suggest not engaging the car sellers (aka: auto dealers) until step 5. This assumes you can do most of your shopping from your computer or smartphone. Some people are more visual. They feel the need to see the product live to gather information. There is nothing wrong with "just looking" in a dealer showroom or car lot. Keep in mind that you will likely be approached by a salesperson. It is important to say "We are just shopping today, we will be back in touch when we are ready to buy."

  3. Call ahead and validate the key information. If the seller is unwilling to provide the information, go to the next car. If you get to the seller and the car is not as represented, go to the next car. By the way, be aware of the car alternative is not available, but the seller suggests another. This is a classic “bate and switch.” Best to move on at this point.

  4. If the car meets your expectations, take it to a trusted mechanic to get a "pre-purchase" inspection. Having a qualified and independent perspective is critical! A pre-purchase inspection provides an itemized and priced list of maintenance needs. If the seller is unwilling to release the car for inspection, go to the next car. If the pre-purchase inspection reveals significant defects, go to the next car. Determining defect significance is judgmental. I anchor my judgment by asking the mechanic this revealing question: “Would you buy this car for your son or daughter.” As an example, I have a trusted mechanic I have built a relationship over the years. My younger son and I brought him a car we thought was “the one!” It passed all our criteria up to this point. It turned out, it had been in an accident not disclosed on the car fax. The frame was bent. The mechanic said, “I absolutely would not buy this car for a family member.” Enough said. We went on to the next alternative.

  5. Use the pre-purchase issue costs to negotiate the price. If the pre-purchase inspection defects are not too significant and you are ready to buy, it is still likely the inspection revealed minor deferred maintenance issues needing to be fixed. Use this to negotiate the price with the seller. At this point, my advice is to BE REASONABLE. Used cars do have normal maintenance needs, so the seller may not wish to back off the price for the “standard” life of car maintenance. As a rule of thumb, I seek to split the cost of repairs with the seller as a reasonable middle ground. See appendix 2 for thoughts on auto financing. If financing is needed, this is the step in the process to confirm car funding via your financing source.

  6. Be aware of the used car source. Many new car dealers source their used car inventory from new car trade-ins. Many used car-only dealers source their car inventory from auto auctions, like Manheim. Be careful with auto auction-sourced cars. These cars are often auctioned from bank repossessions. It is more likely the previous owner of a repossessed car did not take care of it as well as you would like.

  7. Consider Facebook marketplace or other "buyer/seller direct" marketplaces. Buying direct from the previous owner may provide a higher quality car source. Rarely do repossessions get sold on direct marketplaces.


5. Typical depreciation curve and market considerations for buying a car:

Note: since the pandemic, the depreciation curve has been impacted by the supply chain and other market forces. Many car professionals believe that in the future, these curves will return to this shape. Thus, the approach in this article remains consistent with making the best car-buying decision. Especially, since the car buying process involves a prediction of future market forces.

The “Here” on the graph is known as the inflection point. This is the point that value deceleration slows to where car values decrease at a decreasing rate. (In math language, this is where the second derivative of the estimated curve is about 1.) This is a good model vintage to consider buying.

Typical drivers of depreciation:

  • Actual wear - this also relates to maintenance costs, an expensive-to-maintain car will drop in value faster

  • The new car market - a strong new car market may depress demand for used cars

  • The used car market - this may relate to 1) seasonal, like the time of year new car trade-ins may enter the used car market, or 2) cyclical, like when leasing residual and used car market imbalance may drive large lease cancellations and autos entering the used car market. Also, in a declining economic cycle, car loan repossessions may create an increase in the used auto supply.

  • The salvage value market - may be driven by government programs like “Cash for Clunkers.” Think of salvage value as price support as the car ages.

Upon solving the second derivative across the vintage years (x), the 5th car vintage year is closest to 1. So, target buying a car at least 5 years old to reduce depreciation risk. Our CPRM model is an approach aligned with identifying cars with lower depreciation risk.

In case interested, this is how the math works regarding the optimal model year:

The above depreciation curve has the following estimated functional shape formula:

y(hat) = f(x)= -.318 ln (x) + 1.0011

and simplified:

and the second derivative:

Upon solving the second derivative across the vintage years (x), the 5th car vintage year is closest to 1.

Could one attempt to estimate individual depreciation curves for each car model? Sure. With enough data, expertise, and time anything is possible. Actually, auto lender risk management organizations do this to help them understand loss, loss reserving, loan pricing, CCAR requirements, etc. However, for our purposes, this would be overkill! Just knowing the 5th year is generally the car depreciation curve's inflection point provides most of what we need to know about depreciation when buying a car.


[i] Johnson, The Elements of Choice: Why the Way We Decide Matters, 2021

Johnson does a nice job describing the impact of choice architecture, particularly as rendered by default and sort options. See Chapter 5, "Decisions by Default." He makes the point that choice architecture “designers” - like the sellers - do not always have the best interest of the “choosers” integrated into the choice architecture. This is a clarion call for being your own choice architect!

[ii] We mention "confidence" throughout this article and in the title. What is confidence and why is decision confidence so important?

Confidence is an emotion. Generally, confidence is a signal that a good decision has been made. In the behavioral sciences and decision sciences world, confidence is closely studied. For the purpose of a significant purchase decision, confidence is an emotion-based signal that a good decision has likely been made. That is, your limbic system and right hemispheric-based subconsciousness are signaling your consciousness that the mental "boxes have been checked" suggesting a good decision. The reality is, that we have many cognitive biases, like "salience" as mentioned in the article, that may render a false signal. Thus, building "confidence in your confidence signal" is important as well! Utilizing a structured choice architecture process and tools as suggested in this article will help you both accurately build and rely upon your confidence signal. Please see our Brain Model for more information on our neurobiological operations that impact confidence.

Hulett, Our Brain Model, The Curiosity Vine, 2020

[iii] Amos Tversky and Nobel prize-winning behavioral economist Daniel Kahneman's work provides the underpinning for negotiation psychology. It is called Prospect Theory and the Endowment Effect. The endowment effect is the loss aversion feeling when we perceive a loss of something owned. The theory demonstrates the feeling is less for a similar something we consider a gain of something not owned. When we work hard to build our car alternatives, we build a sense of ownership for that alternative. Thus parting with an "owned" alternative creates a greater feeling of loss. It does not help that a good salesperson seeks to build your sense of ownership for something you have not yet purchased. That is part of the basic sales playbook.

Kahneman, Tversky, Prospect Theory: An Analysis of Decision under Risk, Econometrica, 1979


The Stoic's Arbitrage: Your Personal Finance Journey Guide

Core Concepts

1. Our Brain Model

2. Curiosity Exploration - An evolutionary approach to lifelong learning

3. Changing Our Mind

4. Information curation in a world drowning in data noise

Making the money!

5. Career choices - They kept asking about what I wanted to do with my life, but what if I don't know? - Part 1

6. Career choices - They kept asking about what I wanted to do with my life, but what if I don't know? - Part 2

7. Career success - Success Pillars - A Life Journey Foundation

8. Career choices - Do I need to be a Data Scientist in an AI-enabled world?

9. Career choices - Diamonds In The Rough - A perspective on making high impact college hires

Spending the money!

10. Budgeting - Budgeting like a stoic

11. Home Buying - Homeownership is an important wealth-building platform

12. Car Buying - Cutting through complexity: A car buying approach

13. College choice - The College Decision - Framework and tools for investing in your future

14. College choice - College Success!

15. College choice - How to make money in Student Lending

16. Event spending - Wedding and event planning guiding principle

Investing the money!

17. Investment thoughts for my children

18. Our Investment Barbell Strategy

19. Using the Stoic's Arbitrage to choose a great investment advisor

10. Anatomy of a "pump and dump" scheme

21. The Time Value of Money Benefits the Young

22. How Would You Short The Internet?

Pulling it together!

23. Capstone - The Stoic’s Arbitrage: A survival guide for modern consumer finance products

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