Sophisticates and Myopes: Who Is Better Off?
In my recent Yahoo!Finance column, I interviewed Bob Sullivan, author of “Gotcha Capitalism.” Sullivan references some academic research that divides consumers into two groups: sophisticates and myopes. Sophisticates are the savvy consumers who clip coupons and call customer service when they’re overcharged, while myopes lack the time or interest to get the best deal.
A reader emailed and suggested that myopes may actually be better off from a happiness perspective. Unlike sophisticates, they are not kept awake at night thinking about how the cable company is gypping them with extra service fees. Here’s a portion of the email, and my response:
Laura: First of all, I completely agree that many companies are finding many ways to squeeze in extra fees that most people don’t catch. As a very analytical and cost cautious consumer, this bugs me night and day. It bugs me night and day… you see, it takes away from my happiness.
I remember a few years back when I actually spent over four hours on the phone with Adobe because they charged me $300 for some software and didn’t send it to me for over four months. It turned out that I ordered it right as they switched over systems and they lost my order but still charged me. My point is, and I’m sure you agree, customer service is stressful and takes away from our happiness.
Back to those pesky costs. As an industrial (business and finance operations) engineer, I remember studying the effect of bundling. It’s the concept that a company makes more money by bundling things together than by offering each one separately. It works because we all value items at different levels, but if you add a lot of things together we often value the sum of the objects the same.
Thus, a company can sell 30 items for say $125 because we all value the package sum at (or above) that amount – maybe it’s a bundle of channels and I value NFL network at $124 and Disney at $1 and you value Disney at $125 and NFL at $1, but we’re still getting a product/bundle for a price less than or equal to it’s value to us.
And those pesky fees. I agree completely that companies go after the myopes. But does it really matter? For starters, if we all adhered to the principles of our capitalistic forefathers, we’d only pay for things that cost less than there value to us. If a cell phone bill got to high, we just wouldn’t use one (but obviously cell phones are worth those fees). If a rental car cost too much this time, we wouldn’t rent one next time. In “theory,” it’s that simple.
It seems to me that it’s not all about things costing too much – in which case we would just stop buying them – but things cost more than we think they should. In this case, in comes down to deciding whether or not our time is worth the savings from calling customer service. As a former “sophisticate”, I didn’t realize how valuable my time was and I called too often. Myopes value their peace and time too much to call. And as a hybrid, I now try and call only when it’s truly necessary.
Finally, the real benefit of our capitalistic society is when companies evolve further. My favorite example is Apple with its simplicity in design and pricing. They’ve discovered the economical benefit of appealing to the emotions of people. They can appeal to sophisticates and myopes by offering a range of simple products and services at clear prices.
I think a great follow-up for your article would be another about whether or not it’s really worth our time or not to be a sophisticate. Because in the end, time wasted on customer service and stress for a pesky refund may have been better off being used towards the creation of life’s greatest gift – happiness.
Dear Reader: Thanks for the insightful feedback. I agree with you that it might be more peaceful to be a myope, and not nit-pick every $5 overcharge. It might be better to spend that time doing something more productive, or more pleasurable. On the other hand, those little nickels and dimes add up, especially when compounded over time.
For instance, I graduated from college debt-free – a combination of scholarships, part-time jobs, help with room and board from my parents and lots of penny pinching. That meant I could open an individual retirement account a year or two out of college. I did so despite struggling on a meager salary in New York.
Where did I find the money to invest? Nickels and dimes. Looking for deals on every purchase, clipping coupons, thinking carefully about what stuff costs; never taking on credit card debt. (Going to bars during the happy hour, where you could nurse one beer and eat the free buffet for dinner.)
Those habits were ultimately life-changing. In my late 30s, I was working long days for a media company, and wanted to go on my own, to get more flexibility and spend more time with my kids. I could take that risk because I had no debt and a healthy retirement fund that had been growing for more than 15 years. I had managed to max out my contributions every year by being a sophisticate.
That doesn’t mean I led a monk’s existence over those 15 years. I enjoyed life in
Sophisticates have a sense of what things cost, so they can make better judgments about when it’s worthwhile to spend money and when it’s not. At its most fundamental, money management is about making value-driven choices; when you know what stuff costs, you can make better choices. That’s important in a culture that tells you that you can have everything you want (just get enslaved by a credit card company at 15 to 30 percent interest!)
Here’s a recent example: I’ve been stalking a new sofa and love seat for my living room for over a year. The beat-up furniture I had was over a dozen years old, but I didn’t want to replace it until all my kids were potty trained, and old enough to know you don’t stab a leather surface repeatedly with a pen because it makes a fun popping sound. (That happened to a friend of a friend.)
I gained a good grasp of what a leather couch and sofa should cost (including shipping). So when I found it at half that price this week, I jumped on it. As I was waiting to arrange for delivery, I met a man who said he had just bought the same set. I asked if he liked it, and he said, “Yes, and I’m a furniture dealer. I can’t even get leather at that price.”
Frankly, this part of being a sophisticate is fun; I love the hunt, I love beating the industry at its own game (furniture has among the highest mark-ups of any consumer product).
Bottom line? The more you know, the better your choices, and the more money you have left over for other fun stuff. (We’re traveling to Florida this month during the kids’ school break; four of five airline tickets were free — frequent flyer miles.)
I think company tactics that force people to spend time avoiding hidden rip-offs is appalling. The playing field is not level, and being a sophisticate can be a hassle. On the other hand, companies aren’t likely to change their appalling strategies, so it’s important for myopes to get in the game. (Sullivan’s book is great for identifying which battles pay off best.)
Being a sophisticate rather than a myope has allowed me to completely avoid revolving debt; systematically save for my goals; and change my work life so I can balance work, family, friends, exercise and volunteering (all of which researchers find contribute to happiness.)
Sorry for the long post! I think the hassles of being a sophisticate pay off big long-term. At least it worked out that way for me. Any other readers out there want to weigh in on myopes, sophisticates and the pursuit of happiness?
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February 1st, 2008 at 7:03 pm
If you’re a consumerist, it’s better to be a myope. Sophisticate consumerists are a recipe for high blood pressure – you have to have It, whatever “it” it is this time, but you notice that you’re getting ripped off. You lack the power to say “take this charge and shove it” because you have to have whatever they’re selling. Ascetic sophisticates can take it or leave it – overcharge them and you’ll lose a customer if you don’t fix it. Ascetic myopes don’t spend enough to lose much on the nickels and dimes.
Most people get more frustrated over excess phone charges, well under $25, than they do over bounced-check charges, well over $20. Why? We “have to have” a phone, for safety, for work, whatever. We’re powerless. The phone company has us by the cojones. But the bounced check charge is totally optional – I just won’t bounce a check again, and voila, the problem of the fee being excessive is solved. I am empowered to avoid the fee. And, yes, I agree that it is unreasonable for companies to deliberately slap us w/bogus charges in hopes that we won’t notice or won’t take action. But perhaps we could reduce the stress by typing up a certified letter while we sit on hold – if the letter is ready to mail before rep answers (or solves the problem), hang up, drop the letter in the mail, and move on.
Your story of living the good life in New York through aligning your dollars to your values is a great story. I hope you inspire many people to find the ways to build a good savings strategy in their own lives.