Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
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Creative Commons License photo figure credit: chefranden

We are all probably familiar, to one degree or another, with the concept of inertia:

“an object will always continue moving at its current speed and in its current direction until some force causes its speed or direction to change. This would include an object that is not in motion (speed = zero), which will remain at rest until some force causes it to move.”

A similar concept is frequently observed in human behavior: It is often difficult to start doing something that you should or want to do, and it is often difficult to stop doing things that you shouldn’t or don’t want to do.  Many people, for example, are not enrolled in their company retirement plans, or are under invested in them, simply because they never filled out the paperwork to do anything different.

Many businesses try to take advantage of this “behavioral inertia”.  Most people have been asked to sign up for a free 30 day trial of something — which still requires a credit card — and after 30 days have forgotten to cancel, as well as 60, 90 and 180 days later.  Many of us have also fallen victim to the gym membership where the cost is automatically deducted from your checking account even though you never go.

It is with this concept in mind that I recently had the opportunity to break my behavioral inertia, if warranted, by reassessing how much I pay for various services.

Two weeks ago I received my auto insurance renewal and was surprised to see that the cost for another year was similar to that of the previous year.  Last year my state changed the way that it oversees the setting of auto insurance rates.  This was supposed to make insurance cheaper for the lowest risk drivers and more expensive for the highest risk drivers.  Since ScrapperMom and I both have the best driver ratings, I expected to see a big drop in our premiums, but this was not the case.

I immediately went to a few websites of competing insurance companies and filled in the information needed to obtain a quote for insurance.  The first site quoted me a price than was 65% that of the quote I got from my current insurer.  The other sites indicated that someone would get back to me, but no one ever did.  I also called my current insurer to find out if the quote was correct and if there weren’t any other discounts that might apply.  The customer service representative said that the quote was correct, and that it was $200 less than the year before.  She was right, I had incorrectly remembered the cost of insurance from the year before.  She also cautioned me about the other quote that I had received.

The new quote that I had received was just for 6 months, and had simply doubled it to get the annual price.  It turns out, however, that a lot of “budget” insurers will quote a low price for the first 6 months and then raise the price in the next 6 months — banking on your behavioral inertia — so that it ends up being equal to or more than an annual quote from another insurer.  I could not get a full year quote from the new insurance company, which made me suspect something was not as it should be.

In the end, I decided to stay with our current insurer, who I have been with for many years.  But I feel good that I at least shopped around to make sure that I was getting the best price, and I also put them on notice, to a certain degree anyway, that I’m not just going to take whatever price they give me without doing my due diligence on the matter.

I performed this same exercise to determine if I’m paying as little as necessary for our TV and internet service.  After looking around, all of the other options were within a few percent, plus or minus, of what we pay now for the same service.  It doesn’t make sense in this case to change providers, but at least I know that I’m not overpaying for the equivalent service.

There are a number of other services that I use that I can reassess as well. I plan to reassess the cost of my cell phone and rental movie service, among others. I’m also going to look to be sure that I’m getting the best deal I can on the interest that gets paid to me on cash investments such as our money market account and CDs — one of which matures in the next month.

Have you been the victim of behavioral inertia or do you have an example of overcoming it?  Share your story in the comments section below.

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