On the Myth of Micropayment ‘Decision Fatigue’

On the Myth of Micropayment ‘Decision Fatigue’

Tom Gracey – April 2016

There has been much conjecture on the merits vs. pitfalls of using micropayments to charge for web content, as an alternative to the long-established advertising revenue model. I am in the camp of believers convinced micropayments are not only viable but necessary, as we become increasingly drowned in ever-more-annoying yet ever-less-effective advertising – and this is the motivation behind the building of the Coinetize micropayments platform. I do not hold the absence of mainstream use of micropayments today as evidence they cannot or will not be used tomorrow. If society were able to grasp and implement new concepts as soon as they were conceived then we would quickly be vastly more advanced. Cryptocurrencies have been possible since the advent of the internet, and serious attempts to create them have been around since the late 1980’s (Bitcoin Magzine has a quick history of cryptocurrencies) – yet only recently has the situation tipped towards more widespread knowledge of their existence and potential. And still more time will no doubt yield smarter applications that take better advantage of the technology. In the field of information new advances become increasingly abstract, and unfortunately the mental effort required to appreciate them climbs in step.

luggageOld style suitcases look strangely… static

I think an early call of ‘this can not work’ is as absurd as saying wheels have no place on suitcases. Prior to around 1970 a person could have made that claim with some element of legitimacy because generally suitcases did not have wheels. That both wheels and suitcases have been around for centuries, yet the age of the wheeled suitcase dawned only very recently, is a testimony to the fact even an obvious idea with clear advantages can take time to gain acceptance. One might argue that the advent of wheeled suitcases coincided with the birth of cheap commercial air travel – an ever increasing number of people were shifting personal effects around, and at some point a tipping point was reached where motivation, means, expertise and vision all fell into line – and presto! Wheeled luggage was born. From the New York Times article: ‘”People do not accept change well,” Mr. Sadow said [the man credited with the inventing the rolling suitcase], recalling the many months he spent rolling his prototype bag on sales calls to department stores in New York and elsewhere.’ People do not accept change well. Even with easy to understand concepts like wheels on suitcases.

In fact people like to do the opposite: tell you it can’t work. They generally seem happy to do this based purely on academic theory and without the patience to wait for empirical evidence. Time and again academic theory gets proven wrong when it meets the real world. Before the Wright brothers there were those theorising man would fly and those theorising this was impossible. In the first camp thousands of machines which flew on paper failed in practice; in the second camp there grew ever more rationale about why heavier-than-air flight would never take place. According to New Scientist“The number of scientists and engineers who confidently stated that heavier-than-air flight was impossible in the run-up to the Wright brothers’ flight is too large to count. Lord Kelvin is probably the best-known. In 1895 he stated that “heavier-than-air flying machines are impossible”, only to be proved definitively wrong just eight years later.”

failed_flying_machineA slightly less successful design than the ‘Kitty Hawk’

What the Wright brothers did not do much of was theorising. Instead they got a model, stuck it in a wind tunnel and began making adjustments and recording what actually happened. All the theorising on all sides was proved wrong by real-world empirical data. But this is not an isolated example: in fact it is rare that untested speculative theories actually hit anywhere near the mark – and the majority of real discoveries were made by accident, often in violation of popular beliefs. But such is the arrogance of human nature that in hindsight we somehow manage to convince ourselves we knew all along. Take a course in aerodynamics and you’ll hear them explain ‘the air on the top spreads out, causing a drop in pressure…’ Anyone listening to that would think we guessed this theory from the beginning and that’s how come we knew to build aerofoils the shape they are. But not so in truth – real explanations of how aerofoils worked were developed only after a very lengthy and arduous period of trial and error, and after the design was seen to be working. Only then did the scientists stroke their beards and come up with a theory to fit the facts. We apparently only generally get things right when we already know the answer. From the accidental discovery of Electromagnetism (by Oersted in 1920, during a demonstration where he was trying to show electricity and magnetism are not related) right up to the theory-busting discovery of high temperature superconductors much loved hypotheses are constantly being blown out by real world evidence. The real world just doesn’t care about our assumptions. And we seem even worse when it comes to predictions relating to human behaviour. Just look at at our failure to predict financial crises – or in fact pretty much any of the other major events in modern history.

With all this in mind, let us turn back to this idea that ‘decision fatigue’ imposes a limit on how small micropayments can be – an idea proposed by the cryptographer Nick Szabo, and widely cited as an argument against the viability of micropayments in general. The argument goes that each time we make a purchase we need to make a decision, and if we have to make many purchase decisions repeatedly, we quickly become fatigued and after a while can no longer continue. Readers can find a more comprehensive and detailed description in Nick Szabo’s essay The Mental Accounting Barrier to Micropayments


The main problem I have with this argument is that it is simply not backed up by what actually happens in the real world. In fact there are several examples in the real world where exactly the situation of pay-as-you-go with tiny amounts of money already exist and seem to function without the human brain collapsing in on itself. The most relevant example I can think of is one I use daily – the internet on my tablet. Since I have a pay-as-you-go package, I do in fact pay a small amount of money each time I surf a webpage or make a download. In fact I am already effectively making micropayments for content! The fact I am paying for the access route and not for the content itself is immaterial to me (but incidentally not immaterial to the content creator. An unfair situation exists there where the network provider is earning money from content produced by someone else, while the content producer is not rewarded). So how am I getting around the decision fatigue issue? Basically I don’t really think about the money each time I load a webpage because I know the amount is small. I just check my balance from time to time and make sure there aren’t any surprises. Of course if my tablet kept interrupting me all the time telling me how much I was about to spend, and asking me if I was sure I wanted to continue, that would get tiresome quite quickly – but this aspect is surely more related to ensuring a smooth, effortless interface and user experience.

Why would micropayments for content be any different? The fact is if the amount of money for each purchase is small people stop making their decisions based on how much money they are spending. They simply stop thinking about it and turn to the bigger issue of what links they want to click on to get their entertainment fix. Sure they might worry about it the first time they use it, but if a few hours surfing doesn’t dent their wallet particularly, it is difficult to see why they would keep agonising over each and every click. We have a tendency to avoid mental effort where possible which has been well researched by psychologists such as Daniel Kahneman. In Nick Szabo’s essay he states “For example, comparing the personal value of a large, diverse set of low-priced goods might require a mental expenditure greater than the prices of those goods (where mental expenditure may be measurable as the opportunity costs of not engaging in mental labor for wages, or of not shopping for a fewer number of more comparable goods with lower mental accounting costs).” The objection I have to this statement is that humans definitely do not measure “opportunity cost” at any point, whether judging mental effort or any other aspect of their day to day life. People will defy all logic by driving around for hours to find a shop that sells slightly cheaper beer. Szabo seems to be implying people perform their decision-making in a clinical, logical manner – when in fact a wealth of evidence, including the very compelling research by Antonio Damasio, suggests decision-making is almost exclusively an emotional affair. For years the same mistaken assumption that humans behave rationally perpetuated the field of economics in the form of the ‘Efficient Market Hypothesis’. Amazingly this theory is still being taught as fact in universities around the world despite a large quantity of contradicting evidence – such is our unwillingness to abandon established ideas even when clearly shown to be false. People do not accept change well, as Mr. Sadow said.

Szabo gives the example of electricity bills (in fact another example of micropayments actually being successfully used in practice!), citing the fact people do not bother to optimise smaller costs. Szabo maintains “The reason we don’t do these things is that they’re not worth the brain cycles: we have reached the mental accounting barrier.” Again I would disagree that the reason we do not do these things is because they are not logically worth it. This would, again, be assuming we behave in a rational manner when in fact a wide variety of well-documented cognitive biases prevent us from doing anything of the sort. Indeed many people also do not bother to optimise larger costs which in a lot of cases would give them a substantial financial benefit, and are surely worthy of those spent brain cycles. The observation that people are lazy accountants in no way proves the existence of a ‘mental accounting barrier’. This sentence reads as a clear jump to a very speculative conclusion.

People have widely varying attitudes to their personal finances and will keep track of their spending to a similarly diverse range of precisions. You just have to look at how groups dining together handle payment; John suggests splitting the cost of the meal evenly amongst the guests, but Bill wants to count every penny. Jane just throws a large note into the center and reclines yawning on her chair. The laziness of the accounting no doubt depends on many factors including the personality of the accountant and their mood (was the meal enjoyable?). But I would also suggest an important factor is the cost of the items purchased compared to the individual’s perception of their own wealth. I find it unlikely that the Bill in my example is Bill Gates.

I absolutely agree there exists a granularity of price structure beneath which people become lazy to calculate – but I absolutely disagree this prevents anyone actually making a purchase. The fact some people are too lazy to check their restaurant bill at all does not seem to stop them dining out. Similarly with micropayments for content – there is no reason why a shopper browsing for online content should be in a state of constant diligence and price-wariness. Nor is it likely anyone would sit with a calculator keeping track of their cent payments as they went. If a rule to do this was somehow forced upon them then I completely agree it would fail – just as you would soon drop an internet service provider if you had to personally keep track of your data usage every time you requested a page. I do not think it is even true that fee stubs on links would deter visitors if they were used to seeing them. If smokers can happily learn to ignore the increasingly gruesome images adorning cigarette packets (another predictive mistake in the analysis of human nature) then I have no doubt they can take low-fee paystub messages with an even finer pinch of salt.

Just a few years ago it was claimed punters would never pay for content at all and that introducing the subscription model would never be accepted. Questionnaire type studies were conducted which seemed to confirm this. “Results showed very few users actually responded to paid content and most had no intent to pay in the future,” declared Hsiang Iris Chyi of the University of Hong Kong in 2004. That was before the Economist, the New York Times, the Financial Times, the Wall Street Journal all went subscription, followed by a vast number of smaller publications. Rupert Murdoch’s 2009 announcement that News Corp was going subscription, and that soon readers would need to pay to access popular editorials such as The Sun and The Times, was met by incredulity from a broad spectrum of skeptics. Vivian Schiller, the CEO of National Public Radio in US said that charging for news online is a “mass delusion”. Sly Bailey, chief executive of the publisher Trinity Mirror said “why would you pay when you can get the same thing somewhere else for free… we very much doubt that it is possible for publishers to charge for general news content when the same content is given away free by the BBC, Google News and others.”

An excellent series of statistical reports published in February this year by the American Press Institute shows how severely these assertions have been crushed.

“In 2009, with advertising revenue steeply declining, news organizations began debating the feasibility of requiring digital subscriptions.

Publications like The Guardian, The New York Times, Time Magazine and The Atlantic published op-eds questioning whether readers would be willing to pay for news online — and whether such subscriptions would cause losses in readership and digital advertising.

Despite these initial concerns, the number of newspapers requiring digital subscriptions has grown rapidly. Consider that in 1997, The Wall Street Journal was the only one requiring a digital subscription among all the newspapers with circulation today over 50,000. By 2010 still only 6 such newspapers were, according to our data. By 2015, 77 of the 98 newspapers with total circulation of 50,000 or more are utilizing a digital subscription model.”

In hindsight it now seems obvious: why would people not be prepared to pay for news content when historically they always have done? And if newspapers did not start charging for content, how were they ever going to survive? I am no fan of Rupert Murdoch, but I do not think it reasonable to assume the vast legions of journalists he employs were about to suddenly start working for free. Of course there are internet users that will refuse to pay for content – but what business sells to everybody? Those people refusing to eat fast food don’t seem to do much damage to McDonald’s bottom line.

I conclude with a question for Nick Szabo: in your essay when you stated, “Communications companies have found billing to be a major bottleneck. By some estimates, up to 50% of the costs of a long distance call are for billing.” I am wondering what are you including in “billing” here? Is this the cost of recording the transactions, summing up and presenting the transactions, sending out physical letters to customers? Are these costs specific to phone networks? I ask because we have a system in place for recording micropayment transactions at www.coinetize.com – which can be viewed easily at the leisure of the web content owner. This is fully automated with practically zero cost the customer.

Article Name
On the Myth of Micropayment 'Decision Fatigue'
A discussion on whether Nick Szabo's "Mental Accounting Barrier" really exists and is a game-stopper for the concept of micropayments
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Coinetize News
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