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Seduction by Contract

Oren Bar-Gill released the introductory chapter from his new book, “Seduction by Contract: Law, Economics and Psychology in Consumer Markets”:


We are all consumers.As consumers we routinely enter into contracts with providers of goods and services—from credit cards, mortgages, cell phones, insurance, cable TV, and internet services to household appliances, theater and sports events, health clubs, magazine subscriptions, transportation, and more.

This book is about consumer contracts. It traces design features common among multiple types of consumer contracts and explores and explains the forces responsible for these design features. Why, for example, do sellers design contracts to provide short-term benefits and impose long-term costs? Why are low introductory prices so common? Why are cell phones given away for free, so long as the consumer signs a two-year service contract?

Why are the contracts themselves so complex? What’s the rationale behind creating credit card and mortgage contracts featuring numerous fees and interest rates calculated via complex formulas? Why do cellular service contracts use complicated, three-part tariff pricing—a fixed monthly fee, a number of included minutes, and an overage fee for minutes used beyond the plan limit—and then further complicate matters by distinguishing between peak minutes, night and weekend minutes, in-network and out-of-network minutes, minutes used to call a pre-set list of “friends,” and minutes used to call everyone else? Separate and equally complex pricing structures are developed and enforced for messaging and data services.

While clearly contributing to a consumer contract’s complexity, a contract’s “fine print” is not the focus of this book.That no one reads the fine print is old news.That sellers hide one-sided terms in the fine print is not surprising.The goal of Seduction by Contract is to explain the design of pricing structures and other contract terms that are often clearly disclosed— “dickered terms” that consumers are aware of and consent to.

Read the book.

(H/T the situationist)