Pawn Stars, the Time Value of Money, and more

Pawn Stars is a TV series that focuses on the day-to-day activities in a pawn shop, featuring Rick Harrison, his father, his son “Big Hoss” and one of the workers, Chumlee It’s not your average pawn shop though; the World Famous Gold & Silver Pawn shop, as its title suggests, is world-renowned and as such attracts many high-value, rare and unusual items individuals are looking to pawn or sell. Viewers love the show for many reasons. The shop features experts that weigh in on various antiquated or specialty items, each show is its own mini history lesson and there are many hilarious antics. Further, it is a prime example of how the market works.

When determining the price the pawn shop is willing to pay for an item, they must weigh in many factors: the cost of labor, the overhead expenses, general expectations of the market in the future (whether prices are going to be falling or rising), how large of the market of potential buyers is, how long they will have to hold the item before they can come to terms with a buyer and sell the object at an agreed upon price, etc. As they often repeat to their customers, they aren’t collectors and a lot of time and expense will be spent by the shop in order to find a buyer, something many sellers don’t take into consideration when they claim the shop gives them a ‘lowball’ offer. If there is no profit to be made, they have no reason to buy it.

One of the aspects the show downplays are the pawns, which aren’t shown as often but are probably more representative of the day-to-day activities of the pawn business. Pawning is a perfect exhibition of the time value of money. Because the seller values $X today very highly, he is willing to pawn his item (let the shop hold it as collateral for the loan) and pay $X+Interest at a definite point in the future in order to reclaim their item . These types of buyers may be described as “motivated” buyers, meaning their time preference is high; they need the money now, even if it means selling their item at a discount to what they believe is its true value. We also see the time-value theory on display when Rick mentions often that they could possibly get more at auction down the road, but this is less desirable than taking the money Rick is offering right now because all things being equal, a dollar today is more desirable than a dollar tomorrow.


Maybe the most glaring aspect of economics that it showcases is that an individual’s value is subjective; the value Rick places on an item may not be the same as the value the seller places on the item. There is not only differences of opinion in value between buyer and seller, but within the pawn shop itself. Rick’s value may not be the same as Big Hoss’ value, or the Old Man’s value, or Chumlee’s value. Many sellers are revealed to have sentimental value attached to the object that they find hard to quantify in a money value and thus have a comparative overvaluation to the relative market price, in which case the shop cannot come to terms with the seller without taking a loss. 

Additionally, we see subjective value in action when Rick is forced to decide whether to buy an object whose authenticity cannot be determined with 100% accuracy. While Rick may be able to make a money profit by selling this questionable item, in his own mind he would take a loss on the item because he would be putting his and his business’s reputation at stake, which is more valuable to him than monetary profit; in fact, to him his ability to make monetary profit is driven by his reputation and so profit and reputation are inextricably linked. 

Pawn Stars is a showcase of how transactions occur in the marketplace. No one is obligated to patronize Rick’s pawn shop by being forced to sell their items or buy his; however, each individual wants to come to terms at a price where each derives an advantage, where each side profits. Each side is driven by self-interest to attain the best price they can and neither buyer nor seller has any power to compel the other. Many times we see that the seller would have been willing to accept a lower price than that which they received from the shop, dispelling the notion that business operates at the expense of consumers. Any time Rick and a seller are able to come to a deal, despite the sellers usually begrudging comment they would’ve like more for their item, both sides are better off than they were beforehand; the shop ends up with a new item to profit from and the seller ends up with some much needed cash.

Other principles we see in action are specialization, the division of labor and comparative advantage; Rick cannot possibly be an expert in every object that comes into his store, he repeats this himself all the time. So he often calls in experts to use their specialized knowledge to come up with a value rather than doing it himself and possibly erring. Also, despite Rick’s expansive knowledge in many specialty antiques, sometimes his knowledge is lacking in specific areas even to a relatively inexperienced Chumlee. In one episode, Rick gave Chumlee leeway (no pun intended) to go out and look for profitable deals on expensive sneakers, an area Chumlee has both absolute and comparative advantage over Rick in. Situations like this display the benefits of social cooperation and the division of labor. 

There are probably even more examples one could come up with on Pawn Stars’ parallels to the market, but these examples go to show how representative Pawn Stars is of economic principles of the free market.

P.S. Pawn Stars also displays the burden that government intervention and regulation puts on businesses. Anytime an antique gun comes into the shop, he must make sure that it was made before 1898; otherwise it is considered a modern weapon by the ATF and he must file paperwork and jump through hoops to be licensed to buy and sell these weapons, which he claims isn’t worth the time and effort. Also, any time any former military weapon comes into the shop he needs to make sure it has been de-militarized and made legal-to-own before he can consider purchasing it, also adding to the regulatory burden.


Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s