How Anchoring & Confirmation Biases Can Hurt Timeshare Owners
Anyone in the timeshare industry has experienced a timeshare owner that is unrealistic about their timeshare’s worth. This can be self-inflicted to insulate themselves from what could be perceived as a bad financial investment. It could also be influenced by extraneous factors such as – salespeople, nefarious resale or rental scams, or something more innocuous like information asymmetry with simply no access to real market knowledge. But these circumstances are not unique to timeshare resale or rental values. They are associated with common biases that our advanced human brains use regularly to make fast decisions.
According to behavioral scientist and author, Dr. Pragya Agarwal “the human brain can effectively process 11 million bits of information every second. But our conscious minds can handle only 40 to 50 bits of information a second”. So, our brains frequently take mental shortcuts known as cognitive biases to help us compartmentalize information, act towards different people and make daily decisions – mostly for our benefit. However, there are two seemingly harmless metal shortcuts, Anchoring Bias and Confirmation Bias that are hurting timeshare owners – so let’s take a deeper look.
Anchoring Bias
Anchoring bias is the tendency to rely heavily on the first piece of information received when making decisions. For example, a homeowner may receive an offer for their home when the market is hot that is higher than another offer when the market has cooled months later. Their bias can restrict them from accepting the lower offer because they feel it’s still worth what it was when the market was “hot”.
Confirmation bias
Confirmation bias is the tendency to seek out and interpret information in a way that confirms preexisting beliefs. Essentially people will search for or, in some cases, only absorb information that supports their narrative. We unfortunately see many examples of this with today’s polarized political landscape.
Timeshare owners and cognitive biases
Timeshare ownership is a great way for individuals to enjoy vacation properties without the full-time commitment and maintenance of a second home. However, anchoring and confirmation biases can create problems for owners when they are looking to sell, exit or even rent to offset their costs and can lead them to make poor decisions that result in financial loss.
Related: Love/Hate Relationships with Timeshares
Cognitive biases and resales
In the context of timeshare ownership, this often manifests as owners may believe that their timeshare holds its financial value despite evidence to the contrary. The initial purchase price of a timeshare can act as a mental anchor, creating a perception that the property is worth that amount or more. A timeshare’s true value is that it delivers high quality and consistent vacations each year. However, timeshares often lose their financial value very quickly. If their lifestyle changes – and it no longer supports use of their timeshare – it can create a situation where owners are reluctant to sell at a loss and end up holding onto something that is no longer providing value.
Cognitive biases and rentals
Further, if someone purchases a timeshare under the pretense of receiving substantial rental income far beyond what the market will bear, problems can quickly materialize. That owner will likely experience anchoring bias on some level which could create failure for an otherwise rentable timeshare – when set at or below market rate. If that same purchaser is using these biases to justify purchasing a timeshare that is otherwise unaffordable in the first place, then a financial crisis could quickly develop.
Owners who are already convinced that their timeshare is a valuable financial asset are more susceptible to these scams and less likely to do their due diligence in researching the legitimacy of the companies they are considering. It also prevents them from doing real market research. While resale markets are nebulous at best, rental markets can be very active and easier to quantify. Most families can determine what a one-off vacation in a resort is worth but very can determine what the value of a timeshare might be worth to them – or how to price it competitively in the market.
The combination of anchoring bias and confirmation bias can create a perfect storm of financial loss for timeshare owners. Owners who believe their timeshare holds its value may be reluctant to sell or rent it out for less than they paid, leading to a loss of income and a failure to recoup their initial investment. Additionally, owners who are overly trusting of exit and resale companies that confirm their hopes of a meaningful sale price or extraordinarily high rental value may fall victim to scams that only deepen their financial burden.
Cognitive Biases and Timeshare Scams
Confirmation bias can lead timeshare owners to be overly trusting of rental, resale, and exit companies that promise to help them get out of their timeshare contracts or assurances of showering them with exorbitant rental income that meets their unrealistic expectations. These companies often rely on misleading marketing tactics and false promises, preying on owners who are already feeling pressure from the ongoing costs of a timeshare they are no longer using. If you spend $40,000 on a timeshare, would you be more willing to cough up a $2,000 “listing fee” to a company promising to list and sell it at $40,000, or $300 to the reputable agent telling you it’s realistically worth around $1K? The answer will depend heavily on how strongly confirmation bias influences an owner.
Related: Top Ways To Avoid Timeshare Resale Scams
Not all scammers lurk in the dark. There are plenty of timeshare rental and resale platforms that collect an absurd upfront based on vastly overpromising by simply placating these biases. Platforms like these generally charge hefty upfront fees which is generally the one-and-only transaction the timeshare owner will ever see. The platform’s representative can leverage the owner’s confirmation bias by falsely corroborating the owner’s inflated sense of financial resale or rental values. If the transaction is already complete on upfront costs, then the resale or rental need not ever close to create revenue opportunity for that platform.
How To Address Biases
It’s not easy to overcome bias in the timeshare resort industry after owners have been led down an unrealistic path. However, resort operators who wish to provide the best customer service should find better ways to set accurate expectations for owners as well as provide clear access to reliable third-party resources to help them defray costs or exit responsibly. For example, our team at KOALA spends countless hours educating owners and we continue to create educational content to keep owners informed about the market. Our mission is to help timeshare owners be successful with rentals and less susceptible to these biases as well as pervasive timeshare scams. As a commission-based marketplace, we only make money if they do, so it’s imperative that we not only acquire timeshare rental supply, but that supply is set to a rate that entices demand. Unfortunately, this logic contradicts these cognitive biases, and it can require some effort to break that cycle and ultimately help an owner get a successful rental on KOALA. We’ve recently launched VIP Memberships to take a greater role in their success.
Timeshare owners should always do their own due diligence in researching the true financial value of their timeshare and only work with reputable companies if they do decide to rent, sell or exit their timeshare. It is also important to be skeptical of anything that seems too-good-to-be-true and to research multiple sources of information before making any major financial decisions.
While anchor bias and confirmation bias may seem like harmless mental shortcuts, they can have serious financial consequences for timeshare owners. By being aware of these biases and taking steps to mitigate their effects, owners can make informed decisions that protect their financial well-being.
Mike Kennedy is the CEO & Co-Founder of KOALA, a Brooklyn-based technology startup that helps timeshare owners rent their unused time to anyone in the world, while opening the doors to a new generation of vacationers.
