Hyundai’s behavioral economics crew is at it again

Hyundai’s marketers have already shown that they understand behavioral economics. They are at it again with this commercial, capitalizing on our aversion for ambiguity. The basic idea is that people show a preference for known risks instead of unknown risks. The original experiment illustrating ambiguity aversion is the Ellsberg paradox. A version of this paradox is a situation featuring an urn with 50 red balls and 50 black balls, and another urn that also has 100 balls but where the exact number of each color is unknown. Most people prefer the urn with the known probabilities of pulling a red or a black ball.

So how has Hyundai adapted that idea to sell cars? A used car is worth less than a new car. That’s obvious. But how much less? Most customers have no idea, and finding out would take a lot of work. They are facing an ambiguous urn. Hyundai, however, has a lot of data about their cars. They also have a lot of smart statisticians who can forecast future used car values. Hyundai’s urn is less ambiguous. Although it could try to turn its knowledge of the used car market into a urn with known odds, the company decides to go a step further. It just tells consumers exactly what the outcome will be.

As the commercial says, “Nobody likes what happens to the value of that new car when they drive it off the lot.” With or without the program, the value of a new Hyundai is going to drop by some amount. Customers know that and accept it – even if they don’t like it. So Hyundai can make the present purchase decision easier by eliminating the future uncertainty about the size of that drop. The company has cleverly swapped an unknown risk for an absolute certainty, and made the new car “gamble” more attractive.

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  • Robert Wilson

    A used car is worth less than a new car. That’s obvious. But how much less? Most customers have no idea, and finding out would take a lot of work. And I think that hyundai dealerships in oregon get mexumimn amount from that used cars.