>But there's another thing too. A friend recently complained on Facebook that she was planning to fly United, but they were going to make her pay an extra $25 for mandatory travel insurance. She was so angry that she switched to a flight on another airline, even though the other flight cost more than $25 extra. It would have been hilarious if she had ended with "and the other flight even offered free travel insurance!"
If this is me, I'm not sure whether you're misrepresenting it on purpose or due to faulty memory (it's not like it's private, I tweeted about it), and if it's not me, I'm curious who it is.
Not about you; sent you an IM with more info.
If this was not about alicorn, why has the post been edited to explicitly refer to alicorn as the person in this situation? From alicorn's response, it looks like the situation you described didn't actually happen. What's the story there?
I see this all the time with regard to the subsidized health insurance in Massachusetts. People will do all sorts of economically insane things to make sure they're poor enough to keep getting the "free" health insurance.
For example, they'll happily pay me $300 in accounting fees to massage their data enough so they can save $20/month by dropping down a subsidy tier.
There seems to be an overwhelming desire to GET FREE HEALTH INSURANCE no matter how impoverished they have to make themselves.
The other way this comes into play is in the marriage trends. 100% of the people I know who have recently gotten married did it because of health insurance packages; one partner had access to a workplace plan, and that overwhelmed all else. I even know of a couple cases where no one (but me) knows they are married; they just did it to get health insurance (and now have to file joint tax returns.) In one case they haven't been involved with each other for six or seven years.
Anyway, this is all very interesting. I'm struggling with how to do pricing of my services right now. I'm frugal and good with my money and personally would prefer to price a la carte, but I think you're right that my clients would rather select a larger single price than be confronted with lots of little nickling and diming.
To be fair, Romney/Obamacare have actual poverty traps, areas where having a bit more income makes you poorer overall in lost subsidies.
Getting "free" things makes people feel crafty. I once drove 10 miles to pick up a free couch that someone posted about on Craigslist (of course, it was already gone).
When it comes to health insurance, trying to screw the seller at one's own expense is especially tempting, since insurance companies are widely considered evil. They are probably also trying to avoid the headache of deciding between different insurance plans. It's impressive that some people actually get married for this (in Canada, it's possible to add a common-law partner to an insurance plan without being officially married).
You'd get used to it, if it *really* was cheaper. I think metered billing evokes terror and hatred in many people because they suspect - quite rightly - that it is really a hidden price increase, and a hidden price increase that their usual mental tactics and comparisons are ineffective in coping with and avoiding ripoffs.
(When it really is cheaper, one gets used to it quite fast. My concern over Amazon S3 hosting for gwern.net, which is priced on storage consumed + bandwidth used + number of requests, dissolved the first month when it came in at less than half my previous host. Now I barely notice whether the monthly bill is $3 or $4.)
Regarding metered billing, our government is going to bring in metered water charges and that is hideously unpopular.
Not alone because up to now, people have either been getting their water for 'free' (that is, we've been paying for it in the rates etc.) or people have had to dig their own wells, organise group water schemes, or just go down to the river with a bucket; not alone because in a country where it pretty much rains nine months out of twelve, the concept of 'water costs money' is hard to wrap your head around...
... but because we know this is not about 'paying for water', it's about raising revenue to pay off the EU/IMF/European Central Bank bailouts, and if the public do adopt the stated aim of being frugal in their use of water, then there will simply just be extra charges slapped on to make up for the loss in revenue from not using water as copiously as we did before.
In other words, we know there will be hidden charges, we just don't know the form they'll take, and metering is not about getting people to be prudent and reduce unnecessary consumption and so making bills cheaper, it's about screwing more dough out of the taxpayers.
The fact is that most people pick their flights by using a price comparison site (bing, travelocity, kayak) and pick the cheapest one. That's where they're competing on price. They have to charge for everything else. What you want is for flights to be non-commoditized products, where they could differentiate based on quality and not only on price.
Ah yes - it can feel like the the price is a LIE if the price comparison site said "it's $200" and you then find out it's actually $225 because you have to buy travel insurance (that's not even an "optional frill"). I think punishing the company for telling Lies on the price comparison site is a Moral Thing to do even if it Costs Me Money.
When I buy flights, I usually start with a flight search engine which sorts by price or by a combination of price and travel time. If one airline converts things that I expected to be included into separate fees, then they're cheating in the search rankings. In other contexts, without a search ranking system, this sort of thing is still like cheating in a price negotiation.
Even if the final price is still good, making that price more opaque is a defection in itself. Anger is what a policy of punishing defectors feels like from the inside.
|From: Joshua Fox|
2012-12-06 07:31 am (UTC)
Run-down three star restaurant
Air travel has become subjectively less pleasant.
You don't mind a McDonald's -- cheap, no frills, clean, predictable.
On the other hand, a run-down restaurant that used to have three Michelin stars and now is cutting prices and corners is kind of sad.
The way I feel on these flights is different.
So, budget airlines like JetBlue, Southwest, Jet2 can be a cheery, cheap, though non-luxurious experience, and the attempts to sell me things are just like concessions in sports stadium.
But on older airlines like American and United, you feel that they are just trying to chisel you out of desperation as they go down.
Also, as @oscredwin and others said, with mandatory or hard-to-avoid fees, you're afraid of being blindsided with an unexpected price increase. Spirit Airlines is especially bad at that.
Edited at 2012-12-06 07:47 am (UTC)
2012-12-06 05:16 pm (UTC)
Re: Run-down three star restaurant
Ironically, these days it's Southwest that still gives you free peanuts, rather than charging for snacks.
Also ironically, my cheapest option for flying to Chile was on LAN, which uses metal silverware and gives free wine with dinner. Interesting, the ticket I got was not visible on the aggregators...
If it was just that the pain of spending money was concentrated in the first few dollars, nobody would ever use a vending machine.
I think a better explanation would start with Clay Shirky's rant about micropayments
: "There is a certain amount of anxiety involved in any decision to buy, no matter how small, and it derives not from the interface used or the time required, but from the very act of deciding."
I would imagine that for things we commonly do, the decision becomes less painful: "I always buy food when I am hungry, and I'm hungry now, so no need to agonize over it." But for things we've never purchased before and have trouble understanding the value of, the decision is more painful.
This is exactly it - the $200 all-in ticket is a better deal than $150 plus "nickel and diming", because the latter also forces you to pay an extra cognitive load to assess each additional charge.
This is why it's so depressing to be poor, because you have to weigh up decisions that would be automatic in more prosperous times. It goes from "I always buy food when I am hungry, and I'm hungry now, so no need to agonize over it" to "I'm hungry, but if I buy readily available food now, I might not be able to eat later in the week, so I should go to the supermarket with the cheap bulk food, but that means paying for a bus on the way back..." etc.
Ryanair in Europe pursues this strategy aggressively, even floating the idea of charging a few euros for in-flight loo access. (Though that seems to be more of a publicity stunt than a serious proposal - though I'm sure if it hasn't been greeted with outrage it would've been implemented.)
It seems to me that it's at least partly about (further) price discrimination as giving a customer-friendly unbundling of services. Plus a healthy dose of price obfuscation - they don't sell through comparison sites, and are in constant conflict with authorities about misleading sticker prices that leave out things like the charge for your chosen payment method (which really is unavoidable) and taxes (now fixed after regulatory enforcement).
Oh, and unbundling seems attractive in prospect but is often disliked when present. (People say they want more choice when they don't have much but don't like having it.) Decision fatigue is likely to be a factor for consumers too.
Ryanair have openly admitted that a few of the suggested price hikes were publicised in order to generate free publicity. While they are willing to pay for advertising, they are even more happy to let media outlets do so for them.
I still regularly fly with them because in spite of the hidden charges, they are genuinely cheaper on a direct comparison with most other European airlines.
Exactly what I was going to say about Scott's hypothetical "charge you for the very seat cushions" airline - isn't that how Ryanair operates?
I think the irritation comes in when you have certain expectations; if you buy the bare-bones, no extras ticket on an upfront cheap airline, you expect extra charges and you mentally prepare yourself by "Do I really need the Internet for this short flight?" or you can eat before you get on the plane so you won't be tempted to buy their meals.
But if you're going by transportation that you mentally expect to be higher quality, then these extra charges are an annoyance because you haven't considered them beforehand; your expectations (whether they were realistic or not) have not been met and you feel like you have been conned.
Mostly, I don't want the cognitive overload of having to work out if something is worth the price multiple times. I'd rather have unmetered, and then be able to stop thinking about it, rather than have the worry in the back of my head.
As a number of people have pointed out already, the biggest problem with nickel-and-diming is that often the extras are advertised poorly if at all, and often you don't know which you will need ahead of time, and the combination of these makes it difficult or impossible to compare the overall price meaningfully before you are committed.
That feeling of anger you get when you get told going to the loo will cost you an extra $5? That's a realisation that it didn't even OCCUR to you to compare those costs when you were selecting the flight. You don't even know if the next cheapest flight on your list would maybe only have charged $3. These things weren't mentioned up front, you were only told about them once you were locked in.
That, not the splitting-up per se, is what causes one to rebel. I have no problem at all with being handed a detailed itemised quote for consideration, or even a quote and a price list for extras; but a quote followed by additional charges not originally mentioned once I accept, for things one might take for granted as being part of the package? That feels dishonest.
Imagine> ahahaha we could just fly Ryan Air! (or was it Easyjet who tried to charge for using the loo... thought about standing-up spaces...)
I think you're right that it feels worse to specifically pay for a frill than to receive that frill as part of an all-inclusive package; I think it is all the things you say, but also it is known that making decisions has a cost - the "pick your own frills" system requires me to make many more individual decisions.
Thinking about museum funding> the wealthy people in your example may be in favour of providing museums to the poor because they think the poor ought to have that access; it's not just about them having to pay to access the museum.
The point, I think, is that we value honesty and straightforward-ness in dealing with people, and are willing to pay a premium to deal with people that we respect.
And that's completely reasonable. I'd rather deal with an entity that would charge me $200 for a service than one who would lead me to believe that they were charging me $100, but actually charge me $150. It is worth $50 to me to punish bad behavior and reward good behavior.
Dollar amounts aren't the be-all and end-all of economic decisions. We are also influenced by how we think of entities.
I actually *have* thought about some political implications of this.
A bundle of goods makes you pay *once* and then feel free to enjoy all the luxuries in the bundle. If you pay a fee for each good, you experience the "pain" of paying every time, and most people will be much more ascetic than they actually would prefer, and sit on the bare uncushioned seat too cheap to go to the bathroom.
A long time ago I read about Galt's Gulch, and one of the features of Galt's Gulch is that there is a fee for everything; a fee to use the road, a fee to visit the park, you have to pay your friend if he gives you a lift, etc. Now, maybe that may sound like an idyllic fantasy for someone seriously ticked off by taxes, but in practice it would be awful. I would never go to the park if I had to pay every time. The whole town would drive itself into misery with stinginess.
The opposite of Galt's Gulch is something like a college campus (or a Google campus) where all kinds of things (food, activities, massages, whatever) are free. They're not really free, of course; in college they come out of tuition, and at Google they buy you perks instead of giving you large raises. The point is, they're *bundled*. So they're free on the margin. So, psychologically, you feel comfortable getting that massage, or going to that movie, or having that ice cream. It gives you a feeling of abundance. In fact, part of why you can charge so much up front is that people like the feeling of abundance.
Someone closer to Homo economicus (and I've met some of 'em!) doesn't have an aversion to spending money for things that make his life better at prices he accepts. Such a person feels as relaxed ordering food in a restaurant as he would going to a free buffet at a hotel (where the implicit price of the food is comparable.) You can *learn* to think of money as fungible. But for most of us poor saps, bundling feels a lot better than fee-for-service.
On our honeymoon, my wife and I stayed (for about the only time in our lives) at a "luxury hotel".
I was unfamiliar with this style of hotel and what it implied. There was a fee for basically every amenety - the example I remember is towels for the pool (you could not bring your own).
As a result I enjoyed staying there a great deal less than I would have otherwise, had the price been higher but ameneties included, because it made me think in each case "do I want to pay a separate fee for that?" and the answer was, generally, no.
That's... the opposite of what I was thinking of when I read "luxury hotel"! I thought you would describe a cruise ship or resort model, where almost everything is included, shows, food, services, etc (barring alchol, gifts, and transportation, generally).
I suspect I would get by at the described luxury hotel cheaply, but not have a lot of difference between that and a cheap roadside hotel where the services weren't offered to begin with.
Yeah. Knowing what I know now, I'd have gone into it with an expected budget of $X for amenities (ouch, bad spellage! bad me!) and then spent that budget while there, without making the on-the-sport cost/benefit analysis, because humans making on-the-spot c/b tradeoffs will always undervalue the long term (in this case, I undervalued the memories I'd have from the stay at the hotel).
I would have no objections to splitting the cost of petrol when going on a journey with a friend, but if I have to pay him every time, why wouldn't I go by bus instead? Do people not give birthday presents in Galt's Gulch, for crying out loud?
Another reason I'm glad I never read any of Ayn Rand's works.
I think the "no favors or presents" thing comes out of sorrow and bitterness.
There are real events in life that can make it understandable for a person to experience that degree of sorrow or bitterness, but that doesn't make it optimal.
> Do people not give birthday presents in Galt's Gulch?
Oh my goodness no, they would do nothing of the sort. Presents and giftgiving - except for those "given" with the expectation of some benefit in return, e.g. buying dinner for the woman you intend to sleep with - is absolutely contrary to their philosophy.
When we say Objectivists are a--holes, we are not making this up.
Okay, I always suspected it, but you've just confirmed it. That is not a human society Ms. Rand is describing in her books.
I mean, there have been times when I've seen things I wanted to buy to give as presents merely because they would have been so apt for the recipient and the pleasure they would have gotten would have given me pleasure, but there wasn't the excuse of a birthday or Christmas or any such occasion. If you can't allow for a little generosity, then you might as well be a colony of ants.
Well, in real life, the few Objectivists I've known have been at least as friendly and caring as non-Objectivist friends, and one in particular loved gift-giving to his loved ones (including children of his friends, who certainly couldn't engage in gift-giving back). I never heard any suggestion that this made him a bad Objectivist. :)
I note even a friend you have to pay may often be more convenient than the available buses, if any. Especially for off-times or transporting cargo.
Oh certainly, if I were going on a long journey or asking for help moving heavy objects/a lot of stuff, I'd offer to pay.
But generally, you'd say to a friend "Hey, can I get a lift into town with you tomorrow when you're going?" and you'd return the favour by barter (do an errand for them, look after their dog when they're on holiday, etc.)
If the reply to the request above was "Certainly, that'll be €7 please" and that was for every time, they'd charge me even if they were driving in themselves in an otherwise empty car, then either I'd hire a taxi or go by public transport, because if I'm going to pay for it, I might as well pay a stranger (because the worst rows are always about money with family/friends).
Interesting. I have a car-purchase anecdote in support of your thesis; let me see if I can make it non-tl;dr.
I armed myself with Consumer Reports, went to car dealer. "I want X car. With only option Y and nothing else. Here's the CR, which says the manufacturer charges you $Z for that car. I will pay you $Z+$250."
Went through normal salesdither. Seller comes to me with counteroffer. "I have a X car on the lot right now, with option Y and also options J and K. The manufacturer gives us $1000 in incentives for selling cars with those options, so I can offer you this one instead, for the same $Z+$250."
I immediately said yes and drove it home. Family members remonstrated. "But options J and K only cost $500 together! You let the dealer make an extra $500 off of you!"
Yet we had a better car for the same price we'd originally intended to pay.
I think people get so consumed by the "competition" between buyer and seller that buyers will consider it a loss to themselves when the seller makes more than the minimum profit even if the buyer also ends up with a better deal.
We are so used to being sold "extras we don't really need" that we go out of our way (turn down better deals or spend extra money) to avoid feeling like we are being taken for a profit by a salesman.
Edited at 2012-12-06 03:01 pm (UTC)
Sounds like your family has been trained to see car buying as a zero sum game. Which I guess it is. But it was a zero sum game between 3 parties rather than 2, and you and the dealer both got a better deal than you would have if you had been trying to 'screw' each other and not the manufacturer (who is competing with both of you and other manufacturers).
I guess that's like the prisoner's dilemma, really.
Well, one side of the family saw it as a zero sum game. The other side asked me "did you get the value you expected to get? If so, why do you care what they did with the money you gave them?"
(The side of the family who saw it as a zero sum game is a family of much better negotiators - famously good at it, in fact. Clearly it is a good negotiation strategy to analyze deals this way, even if it doesn't appear to make sense to me and people who think like me.)
And now you've just outlined the reason why unlike the simplicity of two-player zero-sum games, three player zero-sum games are at least as complicated as general two-player games.
I fly a fair bit for buisiness (so often I'm not even paying my own money) and it irritates me to pay for food or entertainment or luggage. I'll tell myself, though, that teh food at the airport or hotel will better in selection or quality or value, since I'm (somewhat) less captive there, and so waiting makes sense, at least for the meals.
Lots of choices can be wearying to people. I try to simply focus on the benefits after the fact rather than wish I had gone the other way. In this case, either appreciate that I saved money, or appreciate that I had a perk that I enjoyed then. Too late to change it after the fact.
But some airlines are annoying to me when they constantly offer services through the flight, regardless of whether I want them or not.
The "mental accounts" branch or relative of prospect theory also applies, I think.
For a while I was paying for MBTA passes even though I knew I might not use it 'enough' so as to have zero marginal cost of transit rides, though I think that makes more sense for transit that isn't completely congested; the trains are running anyway, arguably fares should be zero so as to maximize the return on public investment in the form of ridership.
I note that if you're willing to consider the negative utility of being offended as a real thing we should worry about, then you should consider the utility of (un)bundling preferences as well. It's no more irrational...
Another episode that confirms this blog is my favorite one. (I literally look forward to every single post, and am well rewarded for my anticipation. I can't say that about any of dozens of other blogs. Anyway...)
In which I learn that even a couple of the most prominent (aspiring?) rationalists fall prey to basic bias; and conclude therefore that how much I think rationalists should focus on changing people has gone down significantly while how much I think we should change institutions has gone up significantly.
The absurdum version suffers from the problem that "$10 for unlimited access to the bathroom" and "$2 per use" are different, and also that I feel somewhat of a moral *entitlement* to the bathrooms (mostly because I presume I have an actual legal right to use them)
Part of it is the "gotcha!" factor. If, when buying the flight, I could "upgrade" to an in-flight meal and internet for an extra $25, I'd feel better.
Equally, if I could only afford the no-frills flight, and was completely broke, but REALLY needed to use the bathroom... well... the resulting scene would probably be unpleasant for everyone involved...
And then there's perverse incentives for the airlines. If it's $2 each time you use the bathroom, they have an incentive to make the air very dry, get me to drink a bunch of free water, and then need to pee a lot. And show in-flight movies of waterfalls and rivers...
Even if they don't abuse it, it's a situation that *feels* abusable.
Tangentially, I've found that it's much easier to make a $10 upgrade for a meal or internet if I'm carrying cash. Pulling out my credit card for an upgrade bothers me a lot. Weirder still, I routinely use it to pay at restaurants, and have actually been making a point of putting small purchases on it so that I can get hit with a "holy shit I spent $400 on eating out this month?!" sticker shock when I go to pay it off.... It's just things like "upgrade to the in-flight meal" where it bothers me.
Yeah, that struck me too: it would make sense for the airline to try and sell bottled water and other drinks (as I assume the pressurised air would be drying out people's mucosa) and then charge for use of the loo.
Though on a short trip, people might make the trade-off that they'll stay thirsty, that way they won't have to buy drinks or pay for the toilet, and instead wait until they reach the airport where they'll get a drink/use the facilities.
Charging for the loo on a plane seems more mean-spirited, though, since you can't exactly get off at the next stop as you can on a bus or a train - if you gotta go, you gotta go!
> It's probably possible to gain the rationality to handle this effectively, but it's not a skill I have right now or a skill I expect other people to have.
Weird; this is not my experience and not my expectation. I find it great when things are cheaper and I can pay for only the things I want. For example, I recently flew with an extremely discount airline. I paid a bit more for reserving an exit row seat (and didn't feel guilty at all), did not pay for a checked bag, and ended up with a very cheap flight.
I have put some effort into avoiding the extra pain from having more choices without sacrificing said choices, but I didn't think I was actually significantly better at this than other people.