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.

Filed Under: behavioral economics, business models, economics, riaa
Companies: riaa

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  1. identicon
    Andrew D. Todd, 18 Jan 2008 @ 9:01am

    Crazy and Felonious Things the RIAA Has Done.

    Well, if you are familiar with Atlantic vs. Anderson, you will be aware that the RIAA did insane things. They unlawfully tried to approach Tanya Anderson's eight-year-old daughter without authorization, and to this end, they "pretexted" a public school. I suspect that RIAA executives would have a very difficult time proving that they were not engaged in "Conspiracy to Kidnap," which is a very serious criminal charge. There have been cases where, when the authorities wanted to make an example, even the act of detaining someone for ten feet or so has been used as grounds to prosecute for kidnapping, eg, the case of Caryl Chessman, who was thereby executed in the California gas chamber. Alternatively, one can envision situations in which a police officer might feel justified in using his service pistol. In other cases, RIAA representatives have come very close to impersonating police officers; and they have substantially completed the elements of robbery, very much the same charge that O. J. Simpson is now in trouble for. When the Los Angeles Police Department heard, at second hand, about the RIAA impersonation within their jurisdiction, they issued a stern warning. Obviously, the RIAA has not learned its lesson.

    Under pressure, the RIAA/MPAA revert to gangster tactics, perhaps as a result of spending too much time with people like Snoop Doggy Dog or O. J. Simpson. Once you start talking about "serious crimes against the person" (murder, rape, kidnapping, armed robbery, "grievous bodily harm," etc.), alleged music piracy doesn't amount to a hill of beans. Any number of "debt collectors" have gone to prison for a long time, regardless of whether or not the money was justly owed.

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