Thursday, January 22, 2009

Betting On Fear

Just before the peak of summer, I received an "enticement" from my power company. I could choose my pay my bill or lock in my bill at a blended-in, usage plus other esoterica driven number. I looked at the two numbers side by side and tried to understand the logic that might have driven the lock-in number which was about ten dollars higher than my bill for the month. At the very height of summer, my bill would likely go up some more and might even cross the magic lock-in figure but how was that an attractive proposition for me to sign up for a whole year.

Now, this company has known my consumption pattern for four years living in the same house. Obviously, the algorithm was lacking as far as I was concerned and I was not convinced. With the tide having turned (at least for the time being), it appears that I made the right call. They were at the time, basically asking me to hedge against runaway energy prices when indeed the prices were constantly on the rise.

MyGallons did took the same idea to gasoline prices - basically a business model that feeds on consumer angst and therefore the increased likelihood of making the wrong call. The idea is for the consumer to trust one or more of these companies to have a magic eight ball with which they can see clearly into the future that regular people cannot. Furthermore, we need to believe that with their extraordinary vision they would have only our best interests in mind.

Maybe there is a third option - they are generally right in assuming that the prices will go up but they have the exact figure of the peak wrong - they are under-estimating it and so you will win by signing up for the deal being offered. I am pretty positive that they have some fine print in the most mind-numbing legalese to take care of that situation should it come to pass.

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