The conclusions we reach about the world are heavily influenced by our underlying intuitions. Various authors have discussed how our immediate sense of how the world works has a major influence on the development of our worldview.
Thomas Sowell’s A Clash of Visions argues that there are radically different “visions” of the world that give rise to the different worldviews we see. Following Joseph Schumpeter, Sowell defined vision as a “preanalytical act of cognition,” a sense of how things are prior to careful consideration. People who naturally harbor what he called a “constrained vision” (or, in his later work, a “tragic vision”) react very differently to the world than those who harbor what he called an “unconstrained vision” (or utopian vision).
Knowing someone’s intuitive framework can explain a lot about how that person evaluates various issues of public policy. Your first reaction when you hear about a “click to cancel” regulation seems like a useful way to gauge your overall intuition about the regulation.
Some companies make it very easy to sign up for a service, but take a very long time to stop paying. The simplest example is a fitness center. I once joined a gym that allowed me to sign up for membership online in about 30 seconds without ever setting foot in the facility. However, to cancel your membership, you must first notify us through the website or app, then go to the property in person with a handwritten statement declaring your intention to terminate your membership, after which your membership will be canceled after the end of your next billing cycle.
I’ve seen some people speculate that this is how Planet Fitness is able to stay in business with only a $10 monthly membership fee. These make it easier for people to participate in moments of inspiration (I’m sure New Year’s resolutions will cause membership to skyrocket) and make it a hassle to close memberships. Membership fees are low, so it’s easy to overlook them. It can take years for people to finally overcome the difficulty of canceling their unused memberships.
Click-to-cancel rules prohibit such arrangements. Under such regulations, if a company offers a way to participate with low transaction costs, it must also provide a way to cancel with similarly low transaction costs.
Here are three reactions people might have after hearing about this regulation:
I will call the first reaction the classical welfare economics perspective. For textbook welfare economists, economic policy should improve economic outcomes by rationalizing and optimizing economic arrangements. Negative externalities should be taxed. Positive externalities should be subsidized. Transaction costs often hinder efficient outcomes and should be minimized. It is argued that this type of contract creates unnecessary transaction costs. Therefore, click-to-cancel rules tend to have the effect of reducing transaction costs, resulting in more efficient outcomes. Therefore, this regulation would be welfare promoting. Sounds like a good idea. But it’s not that simple.
Martin Guri expressed concern about this idea of optimization in his book The Revolt of the Masses.
Our species tends to think in terms of narrowly defined problems, usually paying little attention to the most important features of those problems: the broader context in which they are embedded. When you think you are solving a problem, you are actually destroying the situation. In that case, most of the results will be unintended.
The second reaction is more cautious. It is inspired by the type of thinking often associated with Hayekian economics, but also included in the work of economists such as Vernon Smith. This way of thinking views the economy not as an optimization problem, but as an immensely complex ecosystem. We can learn about the general conditions for ecosystems to grow and thrive, such as property rights and freedom of contract. But trying to make targeted interventions to bring about a specific outcome is a bit like trying to eliminate a pest from an ecosystem by introducing a new predator. It simply adjusts a static variable and has no further effect. You are interacting with an adaptive ecosystem.
Those who share the Hayekian perspective are encouraged to point out that there has always been an option for gyms to compete with other gyms by making it easy to cancel memberships. If the customer wants it, the entrepreneur can provide it, and the deal isn’t delivered, that reveals something. This can be interpreted as an indication that this seemingly obvious problem/solution combination is not as simple as it seems. You need to be careful here. If things are more complicated, tread carefully.
The third response is a more hard-line libertarian perspective, based on freedom of association and the associated freedom of contract. This reaction is to interfering with private agreements. As long as the terms of enrollment and withdrawal are clearly spelled out in the contract and people are willing to sign it, that’s it. Whether banning such arrangements would promote welfare is beside the point. No one has the right to try to force a change in the terms of that contract or tell people that they can’t create and sign such a contract if they wish. End of story.
Reader, which of the following reactions best describes your initial impulse regarding the click-to-cancel rule?
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