Published in the San Diego Union-Tribune, June 13, 2022
by Neil Senturia
I know that we are living in turbulent times, but you can always count on one thing — they are still trying to screw you.
Herewith a story that touches on my favorite topic of behavioral economics, a subject that every entrepreneur needs to embrace.
I subscribe to The New Yorker magazine. Last week, I got an email that says they are going to auto-renew my subscription at $169 per year unless I contact them. Nice of them to tell me before it showed up on my credit card.
But I never met a deal that I didn’t think I could negotiate, so I call them. I get a nice lady on the phone in some call center in a foreign land, and I tell her that I am not going to renew at the price offered of $169 per year. Have you got a better deal? She says, sure, how would you like $119?
So, you geniuses at the magazine, why didn’t you offer me $119 in the first place, and then when I call up to demonstrate my negotiation skills, tell me that is the best rate and we hope you will renew?
Now, let’s think about this. Did my attitude about The New Yorker change? You bet. I don’t like how they do business, and now I don’t trust them. After being a subscriber for 127 years, I feel cheated and abused and tricked and all that goodwill is erased in a moment.
In the future, I will have to call and challenge them whenever they offer me anything online, offline or clothesline. I’m thinking maybe I’ll just call and cancel on general principles.
This is behavioral economics in spades. For the $50 difference, The New Yorker compromises a lifetime of goodwill. And here is what is nuts, I didn’t even have to argue with the lady, she just offered the lower price without blinking. No muss, no fuss, no nothing, she just laid it down.
Your renewal policy is designed to assume I am an idiot and deserve to be economically abused. Why do companies do these stupid things?
While not in my normal entrepreneurial wheelhouse, I was recently asked to mediate a divorce. Now, I admit that I am not an expert, but I have had one of my own, so I am not a complete virgin on the subject.
The key again is behavioral economics and risk/reward analysis. The couple have been fighting for a year or more, legal fees into six digits on both sides. But a court hearing is looming on the calendar in seven days, and neither side really wants to do the infamous custody evaluation, where some knucklehead with a Ph.D. takes control of your life and tells you who and how you will parent the children for the next decade.
I assemble both parties in my office at 8.30 a.m. on a Friday, and I tell them that the mediation session will end at 1 p.m. End, done, over, never to appear again. Deadlines matter. And then we begin the dance. Back and forth, in separate rooms, “are you kidding, never, no way, it’s not about the money, over my dead body, that’s our child you’re talking about.”
At 12:37 p.m., one final offer, and yes and yes and done, and it is over. Time for lunch. (Of course, in the end, it’s always about money).
I went back to study one of my favorite Harvard professors, Francesca Gino, who has written a great analysis of the 2002 Major League Baseball negotiation. I will not bore you with the gory details, but the key element was that the MLB Players Association set a deadline. A line in the sand. “The strike was avoided with less than two hours to spare. Just 90 minutes before the Aug. 30 strike deadline, the two parties announced an agreement.”
The idea of a time-pressure deadline is powerful. Gino says that it “tends to reduce demands and speed up both concessions and agreements.” One moment, you’re a tough guy standing on the dock, but the boat leaves in one hour and you are either on it or not. Just too far to swim.
Rule No. 717:
You gotta love “the courthouse steps.”