Misrepresentations in the Rat You Out Economy

            Most readers over the age of 30 probably know the meaning of “rat you out.”  In crime movies and elsewhere, someone discloses to law enforcement and other authorities the crimes and indiscretions committed by someone else. The rat saves himself from criminal prosecution, or something less hazardous, such as embarrassment.

            We live in a rat you out economy where just about every commercial and even presumed private transaction has an informant with a financial incentive to disclose any and all wants, needs, desires, interests, locations traversed, political affiliation and even crimes that law enforcement would never uncover.   Even trusted intermediaries reserve the option in their service agreements, for which consumers have no option other than “take it or leave it.”  In this world, cellphone carriers can leverage their need to track subscribers’ locations not just to maintain reliable service, but also to create new profit centers from the sale of locational information to willing buyers. 

            A curious example: a political party wanted to know the identities of frequent visitors to Roman Catholic churches.  Despite carriers claims that they anonymize subscriber location information, data analytics firms can use multiple sources to identify individuals, frequenting the churches.  With this amalgamated information, a political party opposed to abortion can target like-minded voters through locational data generated by cellphones, collected by wireless carriers and mined by other data analytics firms.

            Plenty more intrusive, risky and potentially deadly rat you out scenarios exist given the ease in which cellphone location data can identify travel patterns.  A bail bondsman might have an easier time finding someone who ignored a court appearance, but so too can a spurned spouse or lover track and potentially harm the rejecting former partner.

            Bear in mind that consumers have to accept such privacy intrusions and surveillance as part of the cost in participating wireless commerce.  Verizon and other carriers reserve the option of monetizing location data, without discounting service, or the cost of the smartphone.  Wireless carriers accrue real monetary benefits as do Internet firms that offer something “free,” provided subscribers agreed to one-sided terms and conditions. Clearly, the value proposition experienced by consumers contains both benefits and costs.

            If you agree to the last sentence above, perhaps you might see the problem in the relentless campaign by sponsored researchers and policy advocates to remind us about all the upside with nary an acknowledgement about the downside.  A recent consumer surplus love fest was expressed in a Wall Street Journal op-ed bemoaning antitrust scrutiny of large technology firms; see https://www.wsj.com/articles/the-misguided-antitrust-attack-on-big-tech-11600125182.  The authors tout the wondrous monetary savings and life enhancements generously offered by Big Tech firms.  Remarkably, the authors make no reference to offsetting financial benefits transferred from consumer to vendor.  They do not seem to comprehend how the rat you out economy works: consumers benefit from something offered freely, or at less cost, but only if they allow valuable commercial surveillance to occur. 

            I will readily acknowledge that consumers might still come out ahead in a final accounting that offsets benefits with costs, but the authors apparently do not want you to know that negative offsets exist.  Even if the authors had mentioned offsetting costs, they might have dismissed them as insignificant. 

            In the broader world of politics and global business such false accounting joins the rate you out economy.  Apparently the espionage in the surveillance by Huawei, ZTE and TikTok is a perilous threat to national security, but the enhanced value proposition from Big Tech deserves a major Thank You! with no need for antitrust scrutiny.

Greed by Algorithm

            The adage about the stock market applies to both human and machine greediness: Bulls make money and bears make money, but pigs get slaughtered.  I am not suggesting that corporations—or academic entrepreneurs—forego profit maximization, or charging what the market will bear.  But consider the following instances where algorithms overreach and in the process tick people off big time.

            In researching hotel accommodation for my daughter’s “White Coat” ceremony marking the start of her 4 year vet school adventure at Virginia Tech, I quickly identified peak demand conditions for Blacksburg and a 50 mile radius. OK I get this: high, inelastic demand equals high prices even for 2 star motels that usually fetch $50 off peak.  But does Marriott do anything but generate ill will with an algorithm triggering a $968-1069 nightly rate for a Residence Inn?

            Countless so-called behavioral economic experiments prove that we humans do not operate as utility maximizing, cost minimizing, rational actors.  We often forego gains so that cheaters do not share or exceed what rule compliant actors get.  I suspect that many people seeing this kind of price quote from Marriott think less of the company perhaps to the point of avoiding its offerings even when quoted rates are fair and competitive. 

            Way to go Marriott algorithm writers!

            Of course, Marriott does not have a monopoly on foolish algorithmic outcomes.  Amazon has an algorithm that occasionally prices an easily procured book at prices no one would pay.  See Amazon Algorithm Price War Leads to $23.6-Million-Dollar Book Listing, https://www.pcmag.com/article2/0,2817,2384102,00.asp.

            Most times, well-written algorithms manage to squeeze out every last dollar of consumer surplus in a transaction.  So-called surge pricing taught a student of mine how elasticity-based rates work far better than I ever could.  During Spring Break in Florida, an Uber ride to Miami Beach cost a quite reasonable $17.  At 2 a.m. the same ride was quoted in excess of $400       .  The student gutted it out until the rate dropped to $147.