Ok guys I know it’s my job to write and yours to wander by without comment but I need your help with a conundrum. The answer, I would imagine, is to be found somewhere in economics, psychology or a mixture of the two. It concerns a situation and mode of behaviour, which to my mind, is illogical and irrational and yet almost without exception, everyone adheres to it and accepts it as normal.

Here’s the conundrum:

In a private transaction between two individuals, why is it always expected that the buyer of a product must relinquish control of his money before receiving the goods, rather than the other way around?

This was brought home to me again recently when I bought a used car privately. The car was privately owned but situated in a workshop where it was having some work done. The buyer was very clear that he must have the money in his bank account before he would authorise release of the car. I would have to trust him with my money, but he wasn’t prepared to trust me with his car.

Well as per usual, I was feeling a little mischievous that day, so I sent him the following email, which sums up my point pretty well..

“Do you think a seller is more trustworthy than a buyer? Neither do I. So why is it perfectly acceptable (expected even) that a buyer take a risk by giving money to a seller in advance of receiving anything, but it’s totally unacceptable for a buyer to release his goods until he has money? It makes no sense, in fact it’s contrary to logic. Take our deal. If I pay you in advance, I run the risk that you take my money and run. That money can disappear very easily and quickly. You can spend it anywhere. You give me your car before funds are cleared and I don’t pay? Well we’re in a pretty similar boat except I can’t do much with a car I don’t have legal ownership of. You wouldn’t want it to happen, but I can’t spend your car in the way you can spend my money. The point I’m making is that buyers are expected to take a greater risk which sellers are prepared to even consider. Given that they both have equal financial interest in the deal (otherwise there would be no deal) it makes no sense.”

He didn’t have an answer, and neither do I. But there’s little doubt that this is what’s universally expected. I’ve bought and sold a lot of stuff online – deals done with private individuals at a distance – and the expectation is always the same. The seller insists on seeing money in his bank account before he will send the gear through the post. So the buyer is expected to trust the seller, but the seller won’t trust the buyer.

This would only make some logical sense if the seller had more to lose than the buyer, but that can never be the case. To use wristwatches for a moment, if I’ve offered to buy your watch for £2,000 and you’ve accepted my offer, then we’re both agreed on the value of what we each stand to lose in the deal. It’s £2,000. The risk of you sending me the watch in advance of payment is exactly the same as the risk of me sending you the cash in advance of receiving the watch. And yet one is viewed as expected and the other as far too risky to contemplate.

So what the heck is going on here? I have my own theory, which doesn’t really answer it satisfactorily in my view, so I’ll keep it to myself for now. I don’t want to influence any ideas you might have... but... Oh what the hell... you guys don’t say much anyway.

If you consider a typical commercial transaction, done at a distance, the buyer is usually the one asked to bear some risk. He or she has to pay money to the seller before goods are despatched. So if you order something through Amazon, for example, you pay first and then they despatch the goods. They don’t send you the latest Celine Dion CD (You didn’t, did you?) and then ask you to pay if you’re satisfied. It’s not how it’s done, and there are good reasons for that.

To continue with the Amazon example for a moment, the company deals with tens of thousands of transactions every day. It would be impossible for them to chase up every customer who neglected to pay for whatever reason, and so they ask for payment first. Amazon is a company of prominent standing and so they are unlikely to renege on their side of the deal. If they did, they would be very easy track down and be brought to book. And so although their customers are expected to take a risk, it’s a minimal one.

Most commercial organisations doing business at a distance work like this, and by default, private individuals dealing with other private individuals follow the same model – despite the situation being totally different.

In a private transaction, there is just one buyer and one seller. The issues faced by Amazon (and yes, even little old me) are not present. The two parties to the deal are in exactly the same position, with exactly the same value to gain or lose and pretty much the same hassles and opportunities for redress if it goes wrong. But everyone behaves as though the seller is a high profile commercial organisation, and the buyer is a potentially unreliable customer who might disappear with the goods without paying.

So I believe the reason people behave the way they do in private transactions is that they simply mirror the relative positions of buyers and sellers in commercial transactions. They take a transaction model from one environment and dump it into an unrelated one – just as it is.

We have a phrase for this kind of thing around here… it’s called ‘chicken on the head thinking’. Why? Well it comes from a half-forgotten parable about a woman who sold cheese at the market. In order to transport the cheese and keep it cool, she wrapped it in muslin and carried it on her head. This was very successful and the product arrived at market cool and fresh. After a while, she decided to move out of cheese and into livestock. She now needed to transport chickens to market, and so encouraged by her previous success, she wrapped them in muslin and… well you get the idea. She took a solution that worked in one situation, and imported it wholesale into a situation with completely different issues and problems.

That’s what I think is probably happening here, and it’s not really unusual. As human beings we’re pretty lazy, and so if we work out a solution to a problem, it’s very tempting to apply it to a different problem. And we do that without employing any critical thinking to determine whether the circumstances are the same or not. We have the perfect solution – but to the wrong problem.

This sort of thing happens more than you might think. For most of us, the biggest danger comes over time – just like our lady carrying a muslin wrapped chicken on her head. Circumstances change, but we don’t really recognise the fact. We have a solution that once worked, but we are now applying it in a different environment. It no longer works nearly so well, and we can’t figure out why.

So are you using solutions which have proved to work in other environments, but not working the same way for you? Are you using solutions which you’ve used successfully in the past, but they are no longer giving the same results? Maybe it’s worth considering whether… to use the terminology of the day… you’re applying commercial rules to private transactions, or using the transportation arrangements for cheese to move chickens!

One simple question will usually set you on the right track…”Why the hell do we do it like this?”

And now... Over to you!