How much would you pay in opportunity cost?  How much would a visionary pay?  I might be on to something here.

Is the difference between the poor and conservatives versus the risk-taking rich really simple objectivity?

In a book that I’m destroying, an interesting thought has spawned.  I’m sure it is not original.  Does “free” blind an entrepreneur?

Experiments were carried out in a couple of different places by behavioral scientists.  I’ll try to attempt a reproduction here.

Given the opportunity to buy a usable good, say a car, a choice is given.  A Chevy or a Porsche.  Now let’s assume for a second that you have sufficient funds to buy and maintain each without suffering at all.  Let’s also assume that the Chevy costs $15k and the Porsche is $80k.  Quality will come down to the car at the time of purchase.  All else equal.  Which one would you choose?

The results of the survey suggested that people would choose the Porsche by a ratio of about 2.3:1.  $65k is a pretty big margin to pay.  They are both forms of transportation.  Maybe the Porsche is more fun?  I digress.

What if…  the prices were both reduced by $15k.  All else equal.  The Chevy is now free.  Given that we still have the same inclination towards the “fun” car, would we not expect the same ~70% to buy the Porsche?

Survey says?  No.  The ratio is just a bit bigger at about 2.5:1.  What is it about free that makes us give up something that we desire for something that simply does the job?  The utility gained from each car is still the same.  The Porsche is still exactly $65k more than the Chevy.

Does “free” blind us to that particular option?  Does it push us so far away from the others?

Going a bit deeper.  What if we were given a dozen Chevys and asked a couple of questions…  You can trade your cars for other cars: 3 Chevys for a Porsche or all of your Chevys for a new Farrari.  What would you do?

Research shows that people don’t want to lose what they have.  You may go for the Farrari, but most people would trade for the Porsche and keep their remaining Chevys.

Take a step back for a second and think about someone you know who is an entrepreneur.  What do you think they would choose?

The Chevys to me are not worth that much.  A Porsche would be cool, but what am I really gaining?  Am I gaining anything?  Am I losing in the deal?

I contend that an entrepreneur would see the sale value of each of the cars and gladly choose the Farrari.  Hang with me here.

The Chevys will go down in value and not at any slow rate.  The Porsche will have a decent resale value and it wouldn’t be a bad choice.  Consider that the trade is $45k worth of cars for an $80k car.  Even if you don’t get full price, you are still making money.  This is where most people go.

I contend that the entrepreneur will trade for the Farrari.  They might see that to sell the Italian car would net them well into $300k and quite possibly more.  This is very profitable considering that they just traded $180k worth of cars.  How objective are the visionaries?  Can they see past the get-the-job-done options?  Is this the definition?

Epiphanys do happen at the strangest times.  Also, you can contact me for the book title – I’m really enjoying it.