One of the most important factors in buying a fountain pen is one that I’ve rarely seen discussed: the difficulty of dealing with uncertainty. Not knowing how we’ll like a pen, whether it will suit us, or even if we’ll want to keep it. The problem affects all of us and is particularly acute when buying online, so it surprises me that so few bloggers or FPN/reddit users have raised the topic. This post is going to discuss how uncertainty affects the decision to buy a new pen and what effect this has on the market.
To recap the model so far, buyers will make a purchase whenever the value of the pen – the enjoyment or satisfaction they take from it – exceeds the price. The gap between these two values is called the surplus, and maximising surplus is what buyers are most focussed on. Consequently, retailers are also focussed on it.
While this has been fairly straightforward, it probably strikes some of you as being not entirely realistic. Just because the value of something is equal to price doesn’t necessarily mean you’ll buy it. One reason for this is because of uncertainty. As buyers, we do not have perfect information and cannot know with certainty how much we will actually enjoy the pen we are buying. So it is not so easy for us to know how much we value it or are willing to pay for it.
Instead, we are forced to make an estimate of how much we believe we will value it, based on whatever limited information is available. Trying a pen in a store gives us a huge amount of useful, accurate information and allows us to make a fairly accurate estimation of how we will value it. There isn’t really a problem of information here.
But for those of us online, who are not able to hold, see, and use the pen for ourselves, estimation is much less precise and mistakes can happen. The good kind of mistake is when you hugely undervalue a pen but buy it anyway: when that parcel arrives and the mistake is recognised, it is a joyous moment. Mistakes can also cut the other way: the crushing disappointment when something is not at all as we expected it to be, and the product has to be returned or kept hidden in the back of a cupboard as our guilty little secret, and hopefully forgotten.
There is another kind of mistake too, one that is less visible but has the greatest effect on the market: when the pen’s actual value exceeds its price – when it is a pen we would be thrilled to own – but choose not to buy because we don’t know that it will be so valuable to us. This isn’t the buyer’s fault, as they can’t possibly know how much they would like the pen, but it harms us all. It is harmful to us as buyers because we don’t purchase something we would enjoy. It is harmful to retailers and manufacturers because it is a lost sale, a missed opportunity that makes the market smaller than it could be. And a smaller market means costs are higher for everyone, and we’re all a tiny bit worse off.
This all happens because of uncertainty. We know our estimations of value are imprecise, we engage in mental discounting: if we see a Pilot Vanishing Point (VP) and think, “That’s really cool but I’m not sure if I’d use it,” then the discounting is already at work. If we knew the VP was perfect for us and valued it at $200, then we would definitely buy it at $130. But if we were only 50/50 on it – that clip on the section might not be an issue but it might make the pen unusable – then we would have to discount our estimate of its value to reflect that uncertainty. Our uncertainty-adjusted value estimate is only $100 ($200 - 50%). As the price now exceeds our value ($130 vs $100), this is not a purchase we would be willing to make.
Of course, if our uncertainty was less than 50/50 – perhaps a friend with similar FP tastes tells us that the clip looks annoying but doesn’t interfere at all – we might discount by a lesser amount, say 25%. This changes our adjusted value to $150 ($200 - 25%) and, as it now exceeds the price, we would make the purchase. There’s still a chance that we’d be disappointed but the odds are now in our favour and worth taking that risk.
Most of you probably don’t engage in the actual calculations presented here – if you do, you might want to consider becoming an economist! – but your mind probably goes through a similar process. As I’ve said previously, the purpose of a model is not to perfectly represent reality but to make it easier to understand what is happening and get some insight into how things work. When looking at buying a pen online, sometimes you’ll decide to buy, sometimes you’ll decide not to buy, and other times you’ll realise you need more information before making a choice. Our next model post is going to look at the role of reviewers, how they help us make choices, and what separates a good review from a bad one.