Charlie Munger’s Mental Models Out In The Wild

Right now, the Tampa Bay Lightning are playing the Chicago Blackhawks in Game 2 of the Stanley Cup playoffs on NBC. In the lead up to the game, however, the conversation has not been about Tampa Bay’s players. Instead, the media has been discussing the policies of Tampa Bay’s ownership regarding ticket sales.

For those of you that don’t follow this sort of thing, Tampa Bay bans the sale of playoff tickets to online purchasers unable to connect their ticket sale purchase to a Florida area code. Additionally, Tampa Bay bans the wearing of away team gear in the 1,400 seats that are up-close and likely to be featured on television.

Because Americans tend to favor the notion that sellers ought to lose all rights to their products after the point of sale, the media response to this policy has been excessively negative because the purchasers of goods and services do not like restrictions on the things that they spend their hard-earned money buying. That is why you are seeing articles from people boycotting the organization or drawing up schemes to sabotage and undermine the policy. That is why you are seeing constitutional scholars having New York Times debates on whether partial speech restrictions can apply to a government-funded stadium. And most damning of all, The Tampa Bay Times profiled an Army captain that could not effectively sell his tickets on the secondary market because of his service obligations.

Needless to say, no organization wants to endure this kind of reputational harm. Management errors like this could easily be avoided if the Tampa Bay organization had some alternative dispute resolution or psychological mental model students on staff.

First, the mental model. Most of us are familiar with the carrot-and-stick mental model in our own delay lives. We tend to like those who give incentives and rewards for achieving good behavior, and we tend to resent those that give us “thou shalt not” lists and tie punishments to undesirable behavior. Most of you are aware that credit card exchange fees hit gas stations hard because it forfeits 3-5% margins in an industry that earns 8% margins in total.

And yet, most savvy gas station operations do not say, “If you pay with credit or card, we will add $0.10 per gallon.” That would alienate customers that prize convenience and like to pay by card. Instead, they say: You get a ten cent discount if you pay with cash. That makes all the difference—you don’t feel penalized for using your card at the pump. Instead, you are aware of an incentive opportunity to receive a modest discount. If you are someone who pays in cash, you might even visit that gas station more often because you feel like you are getting a deal. Either way, very few people drive off feeling alienated. That is a good business management practice.

If I were running the Tampa Bay Lightning and sought to exclude certain fans, I would use the carrot rather than stick model. Instead of banning Blackhawks jerseys or out-of-state zip codes, I would establish a policy like, “Post a picture of yourself on Instagram wearing a Lightning jersey and receive a 20% discount on your ticket order”. This principle would appeal to local fans that would feel they are being rewarded for proving their loyalty, and most out-of-state fans would shrug their shoulders and tolerate it without dwelling on the policy too much (if they were even aware of it at all.)

I would calibrate the regular price of admissions higher to take this 20% off policy into account, much the same way that dry cleaning services charge a price above the general market value of the service because they expect a slight majority of the customers to use coupons.

The Instagram/Facebook angle would also tap into the concept of social proof, as seeing all your friends and members of your peer group wear Tampa Bay Lightning gear would build the brand. It’s a classic example of a lollapalooza effect where you can achieve the desired ends without alienating the public and bringing reputational harm to your organization in pursuit of your goals.

Now, for the alternative dispute resolution angle. Some of you may be thinking, “Yes, but the ends achieved by Tim’s suggested policy aren’t the same.” The current Tampa Bay policy would likely weed out more away jerseys than my policy would. How should we think about this shortcoming?

One of the first things that is taught in alternative dispute resolution courses is that you should never seek cures that are worse than the problem. The real problem with the Tampa Bay Lightning organization is that hockey only enjoys lukewarm support in Florida because there are a lot of other fun things to do competing for residents’ disposable income, and getting flooded by out-of-towners is a real risk at sporting events.

But a modest amount of Blackhawks jerseys in premium seats is not a problem—rather, once a critical mass of 30% or so is reached, the home ice edge starts to feel lost. If a non-alienating policy can be crafted that only results in 10-15% of ticket seats being filled by non-home fans, it should be pursued because the home-crowd feel is maintained. The annoyance of still seeing some Blackhawks jerseys would be tolerated as a cost-of-doing business because an absolute ban would create a bigger problem than the problem that is trying to be solved.

This is what happens when organizations focus on positions instead of interests. Tampa Bay is focused on the position of banning out-of-state hockey fans. But really, their interest is maintain a home-ice feel during the Stanley Cup. The interest of the organization can be achieved by focusing on basic mental model and general management principles, like rewarding local fans in a way that increases social proof and does not bring harm upon the organization. It also reinforces the point that there are certain situations when minimizing a problem should be pursued rather than the elimination of a problem. Sports can teach us so much about life because the same principles that animate the feelings of a sports fan also extend to other business management areas as well.

Originally posted 2015-06-06 19:24:19.

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