Relative Value and Bargaining

I got into a tuktuk in Chiang Mai to meet my friends for dinner. A tuktuk is a motorcycle with a built in passenger cart behind the driver, which serves as a taxi, but doesn’t have a meter. You negotiate the price up front to avoid getting hit with a big surprise when you arrive.

In broken Thai, I asked the driver how much the ride would cost. He thought for a long time and said 150 baht. I countered at 120 baht and he accepted.

How much is the twenty minute ride worth? I’d probably pay eight or ten bucks. I’m only here a limited amount of time, the restaurant sounded really cool, and I’d been cooped up on my computer all day.

His opening offer was $4.50, and I countered at $3.60. A local would have paid something like $3, and I could have gotten it there if I’d been willing to argue for a couple minutes.

It’s a weird dynamic, because I’m negotiating over an amount of money that is wholly insignificant to me, but probably not to him. And either way, I’m getting about 50% off what the ride is worth to me.

The whole exchange reminded me of the negotiations on the condo in Vegas I bought. Due to an error, I bid on, and was countered on, the wrong condo. To make a long story short, for two days I thought that I was going to pay $1900 less than I ended up having to pay.

Because I was comparing the condo’s price to the fictional price I’d internalized as the “price I was paying”, it now seemed really expensive. I second guessed whether I should even be buying it or not.

Riding in the tuktuk made me think about it objectively, though. Just as the tuktuk was worth double his initial offer, the condo was probably worth an extra $5000 over what I paid for it. It was still $10k under the maximum I had set for myself.

It’s important to think of values in absolute terms, rather than relative ones. Is my condo worth to me what I’m going to pay for it? Very easily. So don’t sweat the small increase.

Sometimes the pendulum swings the other way, though. A slightly fancier car that’s only marginally more expensive than another one may suddenly seem like the best value on earth, when maybe neither of them are.

We have to use relative values for negotiation. If the tuktuk driver had asked me up front what I wanted to pay, I have no idea what I would have said. The same goes for the condo. You take some arbitrary starting point and negotiate from there. But when making the decision on whether to negotiate or not, think absolutely. Is this worth it, even at a lower price?

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Photo is a row of houses along a canal in Amsterdam.

Last day in Maui! Highlights so far are hiking the crater and scuba diving. During our dive I got to crawl into a cave full of sleeping sharks.

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