An example for your classes: All of those economists @Amazon and they still got “burned” by loss aversion (or did they?)
From the WSJ ( Alexa, That Isn’t Elvis! New Music Shuffle Irks Amazon Prime Users):
Dustin Bingham loves to play music when he cooks. Recently, he asked one of his eight Amazon Echo smart speakers to play Michael Bublé while he prepared some pasta.
Sure enough, sounds of the Canadian crooner filled the kitchen, courtesy of his Amazon Prime music account. But what was that next tune? Not Mr. Bublé, and not anything Mr. Bingham had ever heard before. Was something broken?
Irritated, he asked his smart speaker to play Luke Combs, and the same thing happened: first a song from the country singer, then something else entirely.
Before long, he was yelling at Alexa, Amazon’s virtual voice assistant. “There was a lot of cussing going on,” said Mr. Bingham, 44 years old. The pasta, he said, burned.
First, do you really “burn” pasta or do you overcook it into a sloppy mess? I checked Google and here is the answer from Quora:
Assuming that you don’t let the pot run dry, you can still burn parts of the pasta if you heat strongly and don’t stir it. Parts of the pasta stick to the bottom and get burnt by the heat from the stove. One of many reasons to stir constantly when cooking pasta.
OK, so don’t let “burning” pasta derail you from the article:
Like many other customers, Mr. Bingham has discovered the hard way that Amazon had changed its options for streaming music. Customers of Amazon Prime, its broad perk service, no longer can play on demand most of the songs in the company’s catalog. That feature is now limited to customers willing to pay more for Amazon’s “Unlimited” music tier.
Nice! You pay $139 for Amazon Prime, up $20 from 2018 to 2021, and they take something away and then offer to give it back (along with other features) for $8.99/month. This is a good example of loss aversion:
Mr. Bingham, who lives near Folsom, Calif., wasn’t a fan, and he didn’t want to pay another $8.99 a month for an Unlimited subscription (the price is going up in February). He gathered all but one of his Echo speakers, he said, and moved them to the garage. He replaced them with two Google Nest devices and subscribed to YouTube Music Premium.
This makes me think this behavior, and there are more examples from the WSJ article, is an example of loss averson. From the Decision Lab:
Loss aversion is a cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining. The loss felt from money, or any other valuable object, can feel worse than gaining that same thing.
Here is the short run outcome (from the WSJ):
Amazon Music has been the fastest-growing competitor to Spotify and Apple Music. But its share of the music subscription market decreased from 21% in January 2022 to 17% in November, the month that Amazon introduced the updates, according to data tracker Antenna.
Amazon is famous for hiring a bunch of economists who, apparently, do stuff that increases Amazon’s profits:
In the past few years, Amazon has hired more than 150 PhD economists, making it probably the largest employer in the field behind institutions like the Federal Reserve, which has hundreds of economists on staff. It was the only company with a recruiting booth at the American Economics Association’s annual conference in January, handing out free pens and logoed stress balls.
Amazon’s economists game out real estate decisions, set the lowest prices that will deliver a profit, precisely determine what customers care about and whether advertisements are working — all using machine-learning algorithms that automate decisionmaking on a massive scale. It’s the kind of asset that smaller companies can’t always pay for, allowing Amazon to pull further and further away from the competition.