Personalized Total Cost Of Ownership And Rational Car Choice: Evidence From Online Field Experiment

Purchasing a car is one of the decisions that may have a sizeable negative impact on an individual or family budget if all costs associated with owning a car are not properly considered. With car leasing being easily accessible, car buyers may underestimate all the costs beyond the leasing payments when choosing a car and select a vehicle above their own budget. This paper conducts an online field experiment in a specially designed bot in the Facebook Messenger application in Estonia, to investigate whether disclosing the complete personalized total cost of ownership (TCO) leads to a better calibrated choice of cars for a test drive. The study documents that introducing better information into real-life car choices does not have a positive effect on the correspondence between cost of car and individual budget. Quite the opposite, subjects deviate from their budget even more when a personalized TCO (for one month or five years) is disclosed, and in particular, subjects generally tend to choose cars above their budget. While previous studies on car buyer behaviour with different cost information have been carried out as lab experiments with hypothetical car buyers, our study contributes to the literature by conducting a field experiment with real car buyers, finding a substantial gap with the results obtained in the lab setting.