How Friction Costs and Present Bias Drive the Economics of Junk Car Disposal

In behavioral economics, two concepts namely friction costs and present bias, have been subject of thorough study and can be used, at least to some extent, to explain, why people so often have economically irrational decisions. As these principles propose, even a simple, immediate action seems to have considerable significance to people, even if it means leaving money of the table. A good example of this behavior in real life is seen in the increasing demand for buyers of junk cars. Such companies offer free no-fuss car-removal services without paying anything in return. 

This model may appear counter-intuitive at first look. Even non-working vehicles are worth $200 – $500 in scrap metal/parts depending on condition/location, according to Kelley Blue Book and scrap valuation sites such as Scrap Car Comparison. In spite of this, however, thousands of people give up their cars voluntarily every month–for free–even if they could sell the car or charge someone for scrapping it.

Why Does This Happen?

The answer lies in the concept of present bias, a fundamental notion in behavioral economics. Present bias is the phenomenon of overvaluing a reward in the present even though it might be worth much more in the future. Sure, the idea of selling a junk car for $300 sounds good, the reality is that it can be a little more complicated:

·      Finding and vetting a buyer

·      Negotiating price and scheduling a tow

·      Filling out paperwork (usually at the DMV)

·      Days or weeks of waiting for a sale

On the other hand, calling a free junk vehicle removal service can mean the car is gone within hours, with no negotiating, no paperwork, no time commitment. The mental and logistical effort—the friction costs, as economists call them—disappear. For a lot of people, this simplicity has subjective value equivalent to or greater than the amount of cash they could have collected through other channels.

The Business Model Behind It

The bias toward convenience is very well understood by companies that remove junk cars, and their operations are built to exploit it. Their websites are streamlined. Pickup is often same-day. Paperwork is handled for the client. These services are offered to reduce the number of steps between decision and action, and to appeal directly to our desire for the convenient.

Some firms even advertise as buyers for junk cars, despite not offering cash, because they know that framing the transaction as a "sale" reduces cognitive friction. The psychology of action is powerful—offering an "instant solution" to this somewhat messy problem clearly wins business from those who might otherwise delay or overthink this process.

Economic Forces Driving This Trend

Today's consumers are expecting instant solutions thanks to the growing accessibility to services like Amazon Prime and Uber. Even the slightest demand for effort can make a purchase seem like too much work, and that trend is working in the opposite direction of the resale market. By abandoning a car, you're not just keeping it out of the resale market. You also might be sending it to a junkyard, where it can be stripped of useful parts and recycled. That's a more responsible course of action than allowing the car to languish in your driveway for a few more years. But it doesn't exactly boost the resale market.

Ramifications and Insights

What we learn in all these behaviors is that paying attention to things that are non-monetary—like the time saved and convenience—is what makes business more efficient and more profitable. It also undercuts millennia-old assumptions that when people make decisions, they are seeking to maximize their utility in monetary terms.

There is a lesson in there for customers: A heightened consciousness about current bias and friction costs can help you realize when you are trading real value for convenience—and when it is acceptable to do so.

Conclusion

The junk car industry is a bright example of how both friction costs and present bias functions in actual decision making. It may sound like it doesn’t make sense to abandon hundreds of dollars’ worth of car for nothing. Many people are however willing to take something now instead of something bigger in the future.” The economics of behavior, not of dollars, decides the success of companies that position themselves as a no-hassle junk car buy.