Saving money on a plumber – game theory in practice

I love the reasoning here. Especially regarding the discount. It seems obvious in retrospect but is also something a lot of people might miss “in the moment.” It’s worth drilling into our memory: If they don’t say it’s a discount, it’s probably not a discount!

I’ve never had the guts to try this but…

Call 3 plumbers and schedule them simultaneously. Tell them as a group that you’ll take the best offer.

The could all gang up on you and ask for something extreme, splitting the profits later, but three of them probably won’t be able to organize.

Sho, if he overcharges and lies that he is giving a large discount he runs the risk that you will find out, in which case he will almost certainly earn an enemy (someone who will take the time to write bad reviews which show up on google local search) or tell a lot of friends about what a unreputable person he is. The plumber does not run this risk if he simply charges too much but is not dishonest about it. These consequences likely prevent him from grossly overcharging while simultaneously claiming he is giving a discount.

Does anyone here have any idea what it costs to run a plumbing contracting company? That vicious crook that showed up and would have charged 150.00 most likely showed up in a 30+k vehicle with another 25K in parts and tools in the back. He probably took the time to learn the trade properly and carries a license.
We have overhead. Out of that 150.00 he probably made 20 or 30 dollars after expenses. You get what you pay for. It costs a certain amount of money to run a proper contracting company. I’m sure your game theory doesn’t find out if the guy has liability insurance if he burns your house down.
Even if the handyman for 50 bucks has insurance, it won’t cover plumbing if he isn’t properly licensed for it. You can damage or run someone’s home if you don’t know what you’re doing.

I think with your atitude, you should really just go to craigs list and get an unliscensed plumber to come out to your home to do the work…..

I think that would certainly be the cheapest way to get your problem fixed…

of course they might not have insurance, might not come back after the work is done if there is a problem, they might have criminals working for them, they might be on drugs when they show up……and they might totally destroy your home…..

but you have saved maybe 50 bucks over someone legit ……

lets make a cost breakdown on your pain and suffering
if they burn down or flood your home….

good move slick……

What the hell is the matter with you people?Do you really think plumbers train for years, pay yearly licensing fees, spend countless hours on continuing education, and deal with other peoples filth because they would rather scam someone than do an honest days work?
Scot admits that he knows nothing about plumbing, but he feels he is qualified to tell others how to shop for one?
And E,if I were one of those three plumbers, I would collect my service fee and encourage the other two to do the same.

@Richard McCormack, mike, chuck, et al.

To those recent posters, understand that this, technically, is a lesson in game theory and finance, not in dealing with plumbers specifically. Ficticious or not, the plumbing element of the story is merely a backdrop in analyzing the relevant strategies and methods of reasoning one can use to make decisions: the essence of game theory.

First, despite the use of the word “game,” there is no implication that the matters here are trivial, unimportant, or without real stakes. Rather, “game” is a technical term that denotes any situation where the decisions you make to maximum your gain (or minimize your loss) depend on the decisions or actions of other participants in that same situation. While there is a strong connection between the games of game theory and trivial games played for leisure, one shouldn’t rely on that connection to the point of taking it as a personal insult that their occupation is used as an example in a game theory lesson. Everything from tic-tac-toe to thermonuclear warfare has been analyzed in terms of game theory.

Second, this topic isn’t an assault, attack, or critique about plumbing. As such, that plumbing is a valid, honorable, occupation in and of itself, in which plumbers train, get licensed, pay to run, need to feed their family and pay expenses, are all irrelevant. They have nothing to do with the topic at hand. I’m sure the “50 buck hack” has a family to feed and expenses to pay as well. It’s neither here nor there.

The point of this article (kindly summarized as the key points at the bottom) were:
–Think about the other person’s motivations
–In repeated business, don’t settle for full price on the first time
–An initial non-discounted quote may be a big rip-off

All of those points are true, regardless of the occupation being talked about. I notice that none of you have actually addressed what this post was about. I also find it hard to believe that absolutely, positively, no plumber in the history of this entire planet has ever overcharged.

To further sumarize the point of the article:
“Shop around.”

Do any of you disagree with that piece of advice?

@Plumbing tech

Anyone that says anything along the lines of “it is theory, not fact” doesn’t, in fact, understand what theories are. Without getting too off-topic, facts and theories are not interchangeable designations that indicate the level of confidence we have in it. Things aren’t promoted from facts to theories. Rather, facts are the building blocks in which theories are made. Theories aren’t facts, they’re built from them.

As far as your analysis:

The only people suggesting some sort of ulterior motive or dishonesty, are you guys. It’s abundantly clear what the agenda is on the part of the plumber: to make money. That is the only assumption here: That the plumber wants to make money. There are different strategies for making money. One strategy is through repeat business. Another is by charging more and not worrying about repeat business. As the scenario states, the price range for plumbing services vary wildly. Are you suggesting that only the highest rates are fair and all of the lower ones are hacks?

Not giving first-time clients a discount is your business strategy. It is not the ONLY business strategy. I would argue that not giving first time clients a discount is, in the grand scheme of business strategies, a rarity. Everywhere I look I see deals offering people initial discounts. Or is plumbing the only honest profession?

Yes, a non-discounted quote may still be a good deal. Based on his research, he determined it was not.

As far as putting these points to use at other places. I do. I understand that the motivation is to make money. Do you disagree with this?

Except … you were arguing with me. So either you aren’t consistent in adhering to your plagarized ‘point’, or you’re simply trying to distract attention from your failure to address any relevant points.

Oh, and politeness doesn’t count when it follows an insult. But what do I know? I’m an idiot, apparently, for daring to disagree with a plumber.

@Richard

I don’t see that plumbers should be immune from being included in economic scenarios. Plumbing is a business. The goal of business is to make money. Businesses will employ different strategies to realize that goal. Other than the specifics, it doesn’t seem clear that any other assumptions being made.

What is clear, though, is that, through some manner, a plumber (or plumber advocate) saw this article, took offense, then went to the nearest plumber’s message board and posted how this mean ol’ economist was dissing plumbers.

Then a group of you came here and started posting about how anyone charging that low is a criminal, unlicensed hack with no family (or a starving family) and to not accept the first offer to that is given is tantamount to stealing food from an honest plumber’s family’s mouths.

I find it hard to believe that any one of you actually read the article with an objective, unbiased mind about the situation. So if you want to talk about assumptions, why don’t we start there?

But since we’re already on assumptions, let’s address the article then, shall we?

Doing anything requires assumptions. You poo-poo this (unjustly, I might add) as little more than an ivory tower theory, but since no person is omniscient (as defensive as you are about plumbers, I’m willing to bet that you’re not going to go as far as to claim that they literally know everything) then we all have to make assumptions. The question is whether or not they’re justified.

To be clear, the assumptions made in this article are (as I perceive them):

1. The possible scenarios were (a, b, c, d, e, as listed above).

2. Plumbing is not a service that lends itself to fixed prices (a la brand control). The author gave his reasoning by way of the wide span of available prices.

3. Because of #2, the price was unlikely to be simply fair, but either a discount or a markup.

4. One way plumbers make money is through repeat customers.

5. One way plumbers entice customers to come back is through an initial discount.

6. Discounts are almost always advertised.

Now, based on those assumptions. He reasoned that, since no discount was advertised, it was unlikely that a discount was given, meaning neither A nor B were probable scenarios. Having already reasoned that C wasn’t an option, that leaves D and E. This brings us to one more assumption.

7. By employing the strategy of a markup, the plumber is conceding the possibility or desire of having a repeat customer and will make up this potential loss of future revenue by using a larger markup. Again, this reasoning was provided in several links.

This rules out D, leaving E.

Now, nothing is certain. Game theory doesn’t offer guarantees, except in the most abstract of scenarios. Rather, based on the available information, it offers strategies which give you better odds than others, to maximize gain or minimize loss.

The author made a gamble, and knowingly made a gamble. He acknowledges this explicitly.

Now, the issues of prices being associated with skill (as well as costs, rather than markups) weren’t, as you claim, assumed to be the same for all plumbers. Rather, they weren’t factored in at all. This is common in such scenarios, though not always correct.

I think a good point could be made that, by taking such a lower price, the author could be also purchasing a far inferior service. I consider it a shame that such a point has been drowned out by what amounts to little more than emotional pleas and insults.

Another point to consider is the fact that it is unlikely that plumbing fair prices fall within the same everywhere. What’s considered cheap in New York may be expensive in Backwatersville, KY.

Anyone here is welcome to address the assumptions (as they are), to criticized the reasoning around them. In doing so, you might actually do something productive here. Otherwise, what do you think is going to be accomplished?

You are correct about a non price fixed environment for plumbing. Where your next step fails however is you aren’t buying the same product from all plumbing companies. There are companies that offer a wide variety of services, and some that may only offer simple repairs like setting toilets or changing faucets.

In plumbing, as in other mechanical trades, the work isn’t always a given. Your simple toilet repair could go from a direct replacement to something more very easily. The 50 dollar discount plumber may not have the skills, license or equipment to handle a growing problem. I’ve shown up on many jobs where piping condition, a prolonged leak or other unforseen problem has changed a simple repair to a complex project.

When you shop strictly on price, that is exactly what you recieve. The lowest cost plumber often rushes through work and may not address problems with your specific installation. Some things like your toilet flange may be too low. The discount plumber may use two wax seals (product in a way it isn’t intended for). Your toilet may not leak right away but the potential is there. The problem could be fixed the correct way without much,if any additional cost. Do you think the bottom dollar guy is more or less likely to go this extra step?

Due to the great variation in quality of service, it is unfair to compare services such as plumbing based on price alone. Would you take the lowest cost surgeon? Generally the better skilled, more cautious, and better equipped professionals demand a higher price for their service.

I don’t know the quality of each plumber and can only speculate on the service you recieved. I can only tell you that from my experiance as a company owner, the extra steps I provide my customer could not be done for much lower than the price I charge. Things like laying down floor protection, wearing shoe covers, complete cleanup and the best way of fixing the problem are what define a truly professional company.

I would be lying if I said price wasn’t an important factor in making your decision. It is however, only one factor in considering the total job. The highest priced company may not be the best choice either. You need to be educated in exactly what your service professional should provide and what they will provide.

In conclusion, it is my contention that the total value of a service is determined by the sum of service, quality and price. By simply looking at one part of the equation, your theory is invalidated.

Here is some fresh content for you. (You are winning the free SEO content game. LOL).

So you made an assumption about what is a “fair” price. There is no probability, scientific, or “game” theory that can be applied to a human perception. (what is “fair” to both parties in a service transaction is not the same for everyone.) If the price was for a tangible commodity, for which all decision making criteria are 100% equal, there may be some logic to your decision.

As for the service you received, if you were happy with paying much less than what it usually costs to provide fair plumbing services, congratulations. You made a good connection. You’re experience is probably an exception to what you can “fairly” expect in return for so little.

“So you made an assumption about what is a “fair” price.”

Actually, he didn’t. If such an assumption was made, then this article would simply be a comparison made against that “fair” price. Except that’s not the case here. Rather the author admits that he doesn’t know what a fair price would be, and resorts to other forms of reasoning to draw his conclusions.