by Stephen McPhie, CA
Partner, RSD Solutions Inc.
When studying for my undergrad economics degree, we spent a lot of time learning what happen in the perfect world when all participants had perfect knowledge. Then we figured out what would happen when introducing a few imperfections into the equation and that told us how the world economy works. My teachers almost seemed to view such imperfections as a nuisance in the field of economic study.
This all seemed totally unrealistic to me, and the wrong approach. Some attention was given to human behaviour, but not enough. In fact that may be where we should start, and at least it is getting some more attention now. Our economic system is based upon imperfect markets and knowledge. Where imperfections do not exist, they get created.
As a small example, my phone bill now runs to several pages and has all sorts of detail about the various savings I’ve made under my particular calling plan. There are discounts for calling certain numbers, for calling at different times of the day or week, for letting the company take payment directly from my bank account, etc., etc. All the discounts sound wonderful except that I seem to keep paying more and more for my phone bill!
I would rather be billed for simple low cost calls and get a bill that is understandable to me. However, the phone company knows perfectly well that its charging structure makes it almost impossible for me to compare its costs with the costs of using a competitor, at least not without spending an inordinate amount of time that I don’t have. In fact, I get the same sort of billing from all utility companies. And of course, when it is very difficult to compare my utility provider’s costs with those of a competitor, I am less likely to change provider.
Many companies do not have the time to properly analyse their hedging instruments and costs and end up relying on their banks for advice. However, in doing this, perhaps it’s worth bearing in mind that my phone company has set out to make it difficult for me to compare other solutions for a reason – and that reason is not necessarily to save me money or provide me with the optimum service for me.
