A Psychological Explanation For RIAA Short-Sightedness

from the would-rather-lose-money-than-let-someone-else-make-it dept

In all of the discussions we've had over various business models that could help make the entertainment industry even bigger than it is today, while embracing things like file sharing, we're always shocked to have entertainment industry execs and lobbyists come back with some sort of version "but that's not fair." We saw it when we tried to explain why questions about the economics of file sharing really shouldn't be seen as a moral issue, because if the economics works out with everyone being better off, the moral question should fall by the wayside. Yet, we were still told that it was a moral issue and a question of "fairness." This is true even if what we describe would make the industry more money. On an absolute basis, they would be better off. If you can make twice as much money, even if some people are "freeloading" and not paying anything, wouldn't that be a good thing? Yet, time and time again, we're told that "no" it would not be a good thing, because of those freeloaders. Universal Music CEO Doug Morris even admitted flat out that giving up 10 cents today to make a dollar later means that he's being taken advantage of for that 10 cents. These reactions are not rational.

At times it's been frustrating trying to understand why this is. We've often just assumed that it's caused by a general inertia: that is, it's not easy for someone who's had a successful existing business model to accept the idea that the market has changed and the business model needs to change. That requires effort and effort is not as much fun as coasting on inertia. However, reader Bill Corry writes in with another intriguing possibility. He points to a story in the LA Times discussing some recent behavioral economic studies on how people deal with fairness vs. rationality, suggesting that it explains the RIAA's actions. I'd actually seen all of the studies mentioned in the past, but hadn't associated them with the entertainment industry's struggles. The key part:
Consider one more experimental example to prove the point: the ultimatum game. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you each get to keep your share. If, however, your partner rejects it, neither of you gets any money.

How much should you offer? Why not suggest a $90-$10 split? If your game partner is a rational, self-interested money-maximizer -- the very embodiment of Homo economicus -- he isn't going to turn down a free 10 bucks, is he? He is. Research shows that proposals that offer much less than a $70-$30 split are usually rejected.

Why? Because they aren't fair. Says who? Says the moral emotion of "reciprocal altruism," which evolved over the Paleolithic eons to demand fairness on the part of our potential exchange partners. "I'll scratch your back if you'll scratch mine" only works if I know you will respond with something approaching parity. The moral sense of fairness is hard-wired into our brains and is an emotion shared by most people and primates tested for it, including people from non-Western cultures and those living close to how our Paleolithic ancestors lived.
So, perhaps the industry is to be forgiven. It's not that they're completely blind to the fact that they're giving up potentially millions of dollars in forgone profits from not embracing new models that also benefit "freeloaders." It's just that we're all hardwired to make bad economic decisions when that happens.

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  1. identicon
    Shun, 17 Jan 2008 @ 4:17pm

    Technocratic Totalitarianism?

    "for a technocracy to replace the republican/democratic style of government that has served us reasonably well for over two centuries"

    Well, I guess that depends on your definition of "us". First of all, I don't want our current crop of busy-bodies replaced by panopticon robots. I like to keep my enemies human, thank you. Also, you mention that the current election seems to favor religious zealots, or at least people who have a problem separating religion from state. I agree that this is a problem, but I would hope that the majority of folks here on TechDirt think that this is not an ideal situation. Again, though, I would prefer to be ruled by a human, rather than an inhuman computer (shades of Paranoia the RPG).

    Of course, I'd prefer that there be "no rulers" and that is what seems to be going on in the world, at this moment. More and more people are waking up to the fact that the "emperor has no clothes". Yes, the military, police, and secret agents of the world can shove us around with direct and indirect force, but the people are waking up to the fact that these forms of carrot-and-stick behavioral controls are no longer legitimate. It's we the people. We make the rules. You can incarcerate us all, I guess, or invade countries that do not share your antiquated notion of copyright, but that will cause your governments and corporations to go bankrupt. How are you going to enforce copyright in a country without a functional court system? Mercenaries? They're expensive.

    Anyway, I wasn't all fired up to write about that. I'm more interested in why RIAA/MPAA keep doing what they do. I think I stumbled upon this a while ago, but couldn't incorporate it into my thinking about the MAFIAA. Essence of Decision was written by people who sought to explain the causes of and actions taken during the Cuban Missile Crisis. Like many individuals, we are assuming that the MAFFIA is a rational actor, and are baffled by their behavior when they fail to act rationally. Actually, they follow the Organizational Process model. All of the fallacies that they have fallen into can be explained by their inability to accept new data. They do what they have always been doing, and react to "threats" with short-term thinking.

    I would posit that until the heads of the MAFIAA-aligned companies are replaced by people who are capable of learning (accepting new information as "true" and using it to make decisions), we are only going to get more of the same from these folks.

    In short: the world has moved on. We don't need you anymore. Get over it. The reason Mike does not start a record company is that the entire model that assumes that you need a corporation specifically designed to promote, distribute, and sell music is obsolete. He could be a record company, if he really wanted to be. So could I; so could you. I choose to comment on this blog.

    Now, I have wasted all of your time and mine, when I could have been busy making my first billion dollars. Thanks techno-priests. I'm going back to my cave, now.

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