Jeff Hulett
- Nov 17, 2020
- 15 min read

Cutting through complexity: A confidence-building car buying approach

Updated: Dec 17, 2022

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.

2. The car decision challenge

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.

Being clear about your car-buying preferences is super important. We also 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 section 7, we suggest a car-buying smartphone app that will help you clarify your preferences. When in doubt, we suggest this preference mindset rule of thumb: "Simpler is better."

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.

3. Decision-making best practices

Background: 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.

Your decision: 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.

Your decision team: Also, making a big car decision does NOT have to be done alone. It is important to share with other members of your decision team. They can provide thoughts on cars, your preferences, or any other part of the decision process. You should have TOTAL control over how you use your car decision team’s feedback. It should be easy to integrate others' thoughts with your own. Feedback is a gift to be considered!

Buying like a pro! 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?

4. A confidence-inspiring car decision solution

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! Our goal is to help you eliminate potential economic discrimination. This happens by being the captain of your decision.

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:

Digging Deeper articles:

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.

5. Your car-buying approach

This section defines the 7-step process for making the best car-buying decision. We also provide many resources, either in the appendix or in cited articles. As a recommendation, we suggest you first go through this section without exploring the details. The important first step to car-buying success is building a mental map of the entire car-buying decision process. Once you get a feel for the forest, it will make more sense to learn about each tree.... or, in this case, the individual steps of the car-buying process. Loading the smartphone app we recommend in section 7 is also helpful at this point. It is good to start familiarizing yourself with the app and some of the other resources before jumping into car-buying mode! Also, think of this article as a friend. Refer back to it often. Some concepts may make more sense after you get some hands-on experience.

Step 1: Anchor your purpose by answering three key questions - Why? What? and Which?:

The "WHY" purpose anchor: 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.

Let’s face it, everyone has different preferences for buying a car. 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.

The "WHAT" purpose anchor: 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 Attitudes toward car ownership and ride-sharing for testing related to undergraduate job interviews. This testing helped to compare rideshare and car ownership attitudes. We also explore how typical cognitive biases impact attitudes.

The "WHICH" purpose anchor: Which is the best model year to purchase? 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. Most 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. However, an older car may have higher mileage. We provide an approach to consider older cars with lower miles and great maintenance records as the way to manage depreciation risk. The idea is to seek value where others may not.

Dig Deeper: See Understanding car depreciation and making the best car decision 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 compare 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: The car purchase - How to think about costs and financing 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 how much you want to pay for a car. Also, if a loan is needed, now is the time to arrange financing. In terms of deciding how much you want to pay, this starts with your car buying anchor from step 1. Using an auto data search aggregator as mentioned in section 4, search for cars that meet this purpose and sort from lowest to highest. The ones at the top of the list will give you an idea of the current market price. The difference between this estimated market price and the cash you have available for a car purchase is the amount you need to finance. 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.

As a word of caution: You may feel the desire to figure out "what payment can I afford?" and back into the car price. This mindset may lead to economic discrimination and not getting a car that optimizes your preferences. The point of this article is to help you get the "biggest bang for your buck!" Trust the process!

Dig Deeper: The car purchase - How to think about costs and financing 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 A good car-buying approach is good for the environment 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 Our car-buying best practices 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. A car inspection may not be 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 Our car-buying best practices 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!

6. 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.

7. 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.

Notes

[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 availability bias. A lack of salience, which could cause availability bias, may render a false confidence signal. Thus, building "conviction 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

Please see the next citation for how to achieve "conviction in our confidence:"

Hulett, Great decision-making and how confidence changes the game, The Curiosity Vine, 2022

[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