28 people tuned in to the Facebook livestream at 9:30. A cinematographer, a Chinese medicine practitioner, the owner of a local café. The tension was palpable — they’ve been anxiously awaiting this moment for weeks. I was also tuned in, my wife watching the screen behind my back, trying hard to refrain from biting her nails. A couple appeared on the livestream, with a MacBook laptop in front of them. This was the moment of truth.
Let me back up a little.
Tomer, 30, lives in Jerusalem with his wife and two daughters. He’s a co-founder of Picktorial, a startup company building photo-editing software. For years, he drove around Jerusalem in a beat-up, scrap metal Mitsubishi Charisma, 1998 model. The kind of car with no A/C, rusty windows and tattered seat covers. In Jerusalem, where some neighbourhoods are completely shut off from motor traffic, there’s no point schlepping around in fancy SUVs.
As the family grew, however, Tomer decided it’s time to upgrade. The problem was, selling a 1998 Mitsubishi Charisma isn’t particularly easy. Potential buyers were dismayed by its mechanical and aesthetic condition, and were reluctant to pay even a small sum to purchase the car.
After realizing he couldn’t sell it, Tomer had an epiphany: he’d raffle the car off! He published a post on the neighbourhood Facebook group (population: 15,000), suggesting the following deal: up to 100 people will pay $20 into a PayBox account (PayBox is Israel’s version of Tilt). At a certain deadline, the car would be raffled off to one of the participants.
This method takes advantage of an ingrained economic bias. The mean (expected value) of the $20, 100 ticket deal is exactly the same as just buying the car for $2,000 one-off. The low ticket price, however, makes the wager seem like a steal, while at the same time negating our inherent loss aversion.
The post was a smash hit. It received hundreds of likes and shares, and people were gobbling up the raffle tickets! A car they were reluctant to buy at $500 was completely appealing at $20, despite the long odds. All 100 tickets sold out in no time — I personally bought two.
Four weeks later, we’re back to the Facebook livestream. All participants were listed on a Google Sheet, and assigned numbers from 1 to 100. Tomer used Google’s random number generator to generate a number; The cinematographer won the car! Despite having lost the raffle, I was happy — the episode was a prime example of how a completely undesirable product can be sold at a premium price, when exploiting economic biases by using the right business model.
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