People have a tendency to amass many items in their homes that they do not use. Used clothing apparel, dishes, office supplies, toys, games, DVDs, CDs, books, decorative items, yard items, etc., are
accumulated over the years and eventually space becomes a big problem. Many households end up holding garage sales. The average number of garage sales each week in the U.S. is estimated at 165,000 (www.statisticbrain.com/garage-sale-statistics/), spring cleanup as they say or moving to a different place.
I have been puzzled by this tradition of having garage sales in Kamloops and in North America. I will claim that households that decide to hold a garage sale are influenced more by psychology than by economics.
Rational households perform an economic benefit-cost analysis. Those deciding to hold a garage sale must think that the economic benefits of doing so exceed the costs. The net value is positive otherwise they would do something else with the used items such as donating them to charity.
However, households tend to over-estimate the benefits of garage sales. One possible reason is what behavioural economists call the endowment effect. Because the used goods belong to the person holding the garage sale, selling them feels like a loss. People are loss averse. The pain of a loss is much greater than the happiness of an equal gain.
This effect implies that willingness to accept a payment to sell the used goods is much higher than the willingness to pay to buy the same used goods. Hence, economic benefits are overestimated because households use their willingness to accept measure.
In addition, households could place a non-economic value on such an activity because of the unique experience, a social norm, pleasure of negotiations, the social interaction with buyers, etc.
Furthermore, the costs of holding a garage sale are hugely underestimated because people neglect their opportunity cost. Households deciding to hold garage sales may not account for the foregone earnings.
The time it takes a person to find the items, to prepare price tags, to set up the stage, advertise, to spend the whole day trying to sell, and to clean up could take up to two or three days of full-time work. This time allocation has an opportunity cost as you could have spent it working. People fail to consider the alternative if it is not salient as with foregone earnings.
Hence, households perceive a positive net benefit. But what is the evidence? A napkin style benefit cost analysis shows a different picture. Using the information at the above website for the U.S. the total weekly
revenue from garage sales is estimated at $4.22 million. With 165,000 weekly events, the economic benefits are on average $25 per event. What is the implicit opportunity cost of holding a garage sale? Using the minimum wage rate of $10.25 per hour and assuming the event takes about two full-time working days yields an opportunity cost of $164. Thus the net benefit of holding such an event is a loss of $139.
But many households seem to perceive a net value of at least $25. This discrepancy between economic assessment and human valuation is probably due to a non-
An alternative way to reduce items that have been accumulating is to donate these to charity. This alternative has a net value that is also positive. Benefits are positive as it "feels good" to help others in need. Costs are much lower and could even be negligible.
I usually donate our used items to Big Brothers and Sisters. They come to my door and pick up my used items. Hence, there is very little cost in terms of foregone wages. Furthermore, I feel good about giving to low-income families, which are in need of these items.
We seem to allocate too much time and resources to garage sales. Another solution to getting rid of our unwanted stuff is to give these to local charitable organizations. You also get a 30 per cent discount!