“Every flaw in consumers is worse in voters”

Economist and professor Mike Munger said this on this Econtalk podcast, recently.

Good point.

I know folks who think that voting is better than markets. They fail to realize the same folks (you and me) make the choices in both, just with different incentives.

Think about what incentives you face when you buy a food at the grocery store or a restaurant, or go on vacation, pay someone to mow your lawn, remodel your house or buy a streaming service.

Now think about the incentives you face when you vote.

What’s different? What’s the same?

It’s good to keep in mind that whatever you might think the flaws are in markets and consumers is worse in voters and to understand why.

I once had a nice chair: be cautious of statistical studies

I once worked for a company that had nice office chairs.

It wasn’t a huge perk. They didn’t make a big deal of it. They didn’t even mention it.

But I liked it. There were days without much else to look forward to at work than that chair. So it helped.

When I was procrastinating on starting a project, the nice chair was there to sit in and get me started.

When a meeting didn’t quite go my way, I turned the corner and saw the chair and it brightened things a bit.

I worked for other companies, where chairs were good enough. Nothing wrong with them. They were comfortable. They did the job.

But, not once did I look forward to my chairs there. Just like the folks that bought them, I never gave them a second thought.

Does this mean managers should approve nice chairs for their staff to improve motivation and productivity? I doubt it. I’m sure that benefit would be hard to detect in a way managers desire: “Workers with the nice chair are 10% more productive!”

Part of it was the nice chair. Part of it was a little reminder that the owners thought enough about employees to even think about providing nice chairs without expecting anything in return. That last part doesn’t replicate in a ‘data-driven decision to drive results.’

After all, when employees catch wind that the managers made the decision to drive results, they realize there was no soul in the decision, the employee was an afterthought and, oh yeah, there’s the expectation of more productivity.

In that way, the chair might become more of a sore spot than a bright spot in a person’s day, because it becomes a reminder that there is an expectation to do more because of it, even though it’s not exactly clear what doing more is.

Maybe it does mean that managers who genuinely care about their workers in ways that show up like buying them nice chairs without any expectation on results might be more satisfying to work with than managers who ‘do what the data tell them.’

Almost always wrong, example

I’ve worked with mature businesses experiencing declines in units sold as the average price rose.

The obvious answer to most folks: rising prices chased away customers.

The market researchers agreed with the sales data, as their surveys revealed that high price was the number one reason cited by customers for not returning.

Even customers believed it. When I talked to customers, high price was the most common complaint.

I believed it, too.

Though, I opened my mind to other possibilities after we tried a number of ways to lower prices and they failed.

The ‘high price’ hypothesis didn’t die easy. We came up with all sorts of reasons why the price reductions failed: We didn’t tell anybody! The price drop was too small! We’ve already priced customers out and they won’t come back.

We tested those, too, to no avail. While others still clung to their high price explanation, I dug deeper.

I began asking customers lost to high price: What price would win you back?

Most paused as they thought about it and then gave me the real reason why they stopped using the company.

I found two common themes: service beaks and value discovery.

An example of service break is when you go to a high-end restaurant and receive casual chain restaurant level service. It’s not terrible, but didn’t live up to the higher expectation.

Value discovery is when someone tries your product and discovers they do not value it as much as their favorites. How many products do you try only to discover that you do not value it? I like beer. I try many beers that aren’t bad, but I don’t enjoy as much as the beers I like more, so I might buy them once and not again.

On a market research survey I might even say the price is too high and what I really mean is that the I’m not willing to pay for that beer when I can pay the same amount for a beer that I like more.

Those answers inspired me to ask the market research group to see raw data from their surveys.

I found through answers to other questions on the survey that got little attention on the market researchers’ final reports, the lost customers revealed the same two reasons.

The market research group had a strong bias against the company’s high prices and when they saw the answer that fit those biases, they stopped looking.

My analysis of the data inspired approaches to keeping customers, without discounting.

One approach we tried: improving training so that when a customer visited a high-end restaurant, they received the service they expected. That worked better than offering the discount.

Through that experience I learned to be aware and leery of when everybody thinks the answer is obvious. Maybe it isn’t.

Be open to other possible explanations.

Consider how to figure out those other explanations, like when I asked lost customers what price would win them back? And then dug deeper into the market research. The answers were there all along, but nobody wanted to look at them because they were so certain they knew already and discounted any opposing evidence.

After all that, I remember one day receiving a challenge from one of the market researchers, “if price isn’t the reason why units have declined, why have units declined almost in lock step with the price increases?”

What I had also discovered is that the prices had been increased by management in the past to make up for the lost units to achieve the company’s financial goals. So, the undiscovered reasons driving the lost customers were, in essence, causing the prices to rise, not the other way around.

Pro/rel arguments & my responses from recent Twitter

Argument: We cannot have pro/rel until there’s enough support!

My response: That’s putting the cart before the horse.

Here’s more: That means, I think support results from pro/rel than pro/rel resulting from support. If that’s right, preventing pro/rel, will just hinder the support.

How does support result from pro/rel?

There are the easy-to-see benefits that I see touted often, like pro/rel makes the relegation battle more interesting, as well as the contests to get promoted from the lower leagues.

But, I think most of the benefits comes from the changes that happen that are harder for folks to see. I wrote more in depth about those here, where I write that I believe 90% of the benefit of pro/rel comes from the changes in incentives at the grassroots level.

That explains why I believe pro/rel results in support, rather than having to wait for the support to be there for pro/rel.

To me, that would be like someone saying that we shouldn’t invent the hamburger before we see support for the hamburger. It doesn’t make sense.

Pro/rel arguments & my responses culled from recent Twitter

Argument: Owners of American soccer teams will not accept pro/rel.

Response: Has anyone asked the owners? If so, please point me to it. I haven’t seen it.

Actions speak louder than words. Several owners also own teams in pro/rel leagues elsewhere. This tells me that they are not all opposed to the idea. I also know of several owners of American soccer clubs, like Rocco Commisso, who would welcome it.

Let’s stop reading their minds.

Argument: Fans want to watch elite players, pro/rel doesn’t matter so much.

Response: Pro/rel does a better job at filtering up the elite players to watch, since clubs compete with each other to get that talent rather than colluding with other clubs to spread the talent for the sake of parity.

To understand this, it’s good to understand the difference between a league operated on open collusion amongst owners for talent and one with independent clubs competing to attract that talent.

Argument: TV networks wouldn’t want a NYCFC to be replaced by Ithaca United.

Response: First, NYCFC is owned by the Manchester City ownership group, which knows how to stay away from relegation zone.

Second, this perpetuates the myth that the main driver of ratings is the size of a team’s home market. This neglects a basic observation in the world of soccer: why so many people around the world who do not live in Manchester, London, Barcelona or Madrid, love to watch clubs based in those cities.

Ithaca United in its current state may not attract a lot of tv viewers, in our out of its market. Neither does NYCFC. Either team, built around the incentives to put, dollar for dollar, the best team possible on the field will be far more interesting to watch by more folks.

For the mediocre-by-design parity sports model, size of home market is a factor. But, even in soccer hasn’t proven out to be nearly the factor it is for the NFL, NBA, MLB or NHL.

For the ‘may the best club win’ sports model, it has been proven around the world that the top level can draw eyeballs from beyond their home territories, while still drawing considerable native support for lower division clubs.

Personal finance basics

Here are a few things I wish I would have known better when I was starting my adult life.

Pay yourself first: Automate regular investments into retirement and non-retirement accounts.

Take full advantage of any company match that you might have for your retirement accounts.

Non-retirement accounts: Pay yourself first with 5-10% minimum into non-retirement accounts.

First, build up an emergency “rainy day” fund to cover unexpected expenses like car repairs and to cover your expenses should you lose your income for a bit. A minimum of 6 months of expenses is a good start.

Once you have that covered, direct that money to investments and saving up for bigger ticket items, like car purchases or home improvements, so you don’t have to pay interest on loans.

Keep your discretionary spending to about 30% of your income.

Don’t spend more than 30% of your income on housing.

Don’t spend more than 15% of your income on cars.

Why not lower the barrier to entry for pro/rel alternative to MLS?

A lot of folks discount the viability of promotion/relegation in soccer in the U.S. on feeling.

“I just don’t see it working here.” “Americans doesn’t support losing teams.”

Fine. But, what’s wrong with trying it?

Alexi Lalas might say, well there’s nothing stopping a competing league system to the MLS from cropping up, if they think they have a better mousetrap.

Well, nothing except a very high barrier to entry set by US Soccer with its Professional League Standards.

To meet those standards to get sanctioned by US Soccer as a legit league, you need to find some folks willing to bet between $500 million to a billion with something that has so far proven to be a low chance of paying off on that scale. That’s an incredibly high barrier to entry and US Soccer knows and so does Alexi Lalas.

It’s by design, to protect MLS from competition. It’d be similar to McDonald’s dictating that any competitor to enter the market must about as big as McDonald’s is now. That’s dumb. Even McDonald’s started small and only grew after hitting upon a winning formula. The PLS assumes the winning formula for a soccer league is known in advance.

I’m going to try asking this question of folks who hold the view that “nothing is stopping a competitor from trying it”:

Are you for mandating that other soccer leagues meet the PLS in order to be sanctioned by US Soccer? Why or why not?

I’ve heard these responses, so far.

“US Soccer has every right to set those standards as they govern the sport in the U.S.”

True. But, that doesn’t answer the question nor does it make it right. The question is, why do you support the PLS?

“So, just start an unsanctioned league.”

That shows a lack of understanding of what an unsanctioned league means. It means players can not participate in international FIFA competitions, like the World Cup, or their contracts be sold to other clubs that participate in FIFA-sanctioned competitiongs. So, essentially, you are basically creating a separate sport that happens to just look like soccer but cannot receive benefits that lower division soccer teams elsewhere can. Namely, you won’t convince many top players to come to your league if they can’t play in the World Cup for their country or have a chance of moving on to better clubs. Also, selling contracts of up and coming players is a big source of revenue for some of these clubs.

“The PLS makes sense to create a more financially viable and stable situation for players.”

At the cost of a much diminished opportunity for these players. I’d rather have more opportunities for players, even if it might be a bit more financially unstable until the full system emerges, than cut those opportunities off at the knees proclaiming they aren’t good enough.

Assuming that you can skip the unstable stage of small experiments that lead discovering winning formulas that replicate is simply not understanding how things work. To get to the stable stage of lots of opportunities, you need to let the small experiments happen.

For anyone that doesn’t understand that concept, I recommend watching the movie The Founder, about the origin story of McDonald’s with this lens: at no point in the early days of McDonald’s was the winning formula known and at any time, the business could have folded. What would have happened at some point had some governing restaurant body come along and said, we disagree with how you are running this restaurant, so you are not allowed to continue?

In hindsight, the success seems obvious and basic. But, hindsight tricks you into thinking this.

It wasn’t obvious early on how that the McDonald’s brother approach would work. Just the simple bet that people would be willing to get out of their car and walk up to the window for a burger was a risk.

And, while the brothers happened upon a winning formula for a quick service burger restaurant, they were unsuccessful in replicating in multiple locations. So was Ray Kroc, early on. But, then he made his big contribution to the franchise world: owner-operator. He realized people who owned and operated their restaurant, hands-on, would be more motivated to keep the food good, the service speedy and the restaurants clean. He was right.

In hindsight, the owner-operator model seems obvious. But, it wasn’t at the time and may have never been discovered if Kroc wasn’t allowed to experiment.

I would love for that type of experimentation to take place in American soccer. We look at European soccer and can’t imagine how or why their fans support teams at so many levels and, rather than trying to understand it, they write it off: “That won’t work here.”

What they’re missing is the 100+ years for small, club-level experiments that have led to a relatively stable and deep soccer system that is unimaginable to Americans (even though it does indeed exist in multiple places).

Yes, failure does happen, just like it does in the American restaurant business, or the real estate or any business. Failure even happens in the soccer business. Local clubs, MASL teams, leagues, kid soccer clubs and, even MLS teams, fail all the time.

So, I struggle to understand the logic supporting the PLS.

Why do we stop at red lights? Part 2

This post from 10 years ago, Why do you stop at red lights?, continues to be one of this site’s most popular. I’m guessing, that’s just by accident, because I doubt many folks pontificate stopping at red lights, philosophically. They may, for example, be looking for study materials for a driving test.

On his blog, Arnold Kling wrote a similar post that I enjoyed reading, Messing with the web of social conventions.

Here’s a good slice:

“The late economist Hyman Minsky had an aphorism:

It’s easy to create money. The trick is getting it accepted

This aphorism can be adapted to other realms.

It’s easy to create a software standard (like the Internet protocols, or an operating system, or a programming language). The trick is getting it accepted.

It’s easy to create the software architecture for a social network. The trick is getting it accepted.

It’s easy to create a law. The trick is getting it accepted.

It’s easy to create a social norm. The trick is getting it accepted.

It’s easy to create a religion. The trick is getting it accepted.

It’s easy to create a credentialing system. The trick is getting it accepted.”

I can add, it was easy to create red & green lights. The trick is getting it accepted.

I recommend reading his whole post. I think it spans much of life.

I see businesses struggle with this. Creating a new product is easy. The trick is getting it accepted. That’s the hard part, that most business managers severely underestimate.

Fashion, music, food, exercise, language are some examples of this type of behavior. I still don’t know how athletes for eons got by without heavy ropes to flail and tractor tires to flip!

The sharks, on the TV show, Shark Tank, are basically trying to pick the products they think have a chance of getting accepted. They understand that it’s easy to create a product, but the hard part is getting it accepted.

As they try to decide what to invest in, they are looking for signs that it has a chance to get accepted. What are sales? Would I use this product? Why or why not? Maybe the product is almost there, but needs a tweak, will the owners be willing to pivot?