I think you've misunderstood me; my apologies for not being clearer and more explicit. I'll try to fix that below.
The question I was trying to address was: How much of the explanation can defect risk be? And my answer was: Not much more than the expected cost of the defects, which in turn is probably rather less than Pr(serious defects) * value of car without defects, which for not-very-old cars is empirically quite a small fraction of the cost of the new car.
(The "used price = new price / 2" case was just an example.)
Since the difference between new and used prices is a large fraction of the cost of the new car, therefore, it seems unlikely that defect risk is most of the explanation -- as I said,
suggesting that hugely reduced price relative to new cars can't be mostly about the risk of such defects.
The context was James Miller's suggestion (if I understood him correctly) that defect risk might in fact be a large fraction of the explanation for the big difference in price between new cars and used-but-not-very-old cars.
I don't think that's wrong, but I have another suggestion: Car prices may be subject to a variation of Goodhart's Law. Defects may not be that likely in used cars, but attempting to act as though they are not likely would create incentives that would make them become likely.
This might require precommitment or superrationality on the part of the consumers, but a lot of "irrational" consumer behavior can be modelled as rational precommitment, even if the consumer doesn't consciously realize that's what it is.
This thread is for asking any questions that might seem obvious, tangential, silly or what-have-you. Don't be shy, everyone has holes in their knowledge, though the fewer and the smaller we can make them, the better.
Please be respectful of other people's admitting ignorance and don't mock them for it, as they're doing a noble thing.
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