Coin Appears to Be Headed toward Failure

Remember Coin? They caused a stir last year with a video about how their device could replace all of your wallet's credit cards. You could bring the George Costanza wallet into the digital age.

Reading over the FAQ section, either the company is running out of money or has a fundamentally flawed understanding of how customers behave. Companies that can appease customers' risk aversion can go far; look at how reassuring Zappos's return policy is.

I've launched a pretend conversation below.

FAQ section: How much does a Coin cost? Each Coin costs $100. For you early adopters there is a very limited quantity that can be purchased for $50.

Risk-averse consumer: I have the choice of buying now and getting an as-yet unfinished product at an unknown time, or waiting and feeling a loss of paying nearly double.

FAQ: How many cards can a Coin hold? A. The Coin mobile app can store an unlimited number of cards, however, a Coin can hold up to 8 cards at a time.

RAC: I'm probably one of the 90+% of people who can get by with only eight cards, but this limit is freaking me out! I hate this just like how I hate cellphone companies limit my monthly data usage, and how I worried about my download limit with my cable provider until they caved.

FAQ: Why do I have to buy a new Coin when my battery runs out? A. Coin is the size of a typical credit card and we were not able to fit a replaceable battery nor recharging components into this form factor. Coin is an electronic device, not a plastic card. We must charge for each device to cover the costs of research and development, manufacturing, and support.

RAC: This is another thing for me to stress about. Why won't you let me charge it? How can I believe your claims about the typical battery life? What if it runs out at an inopportune time (after all, I will have left all of my other cards at home and have no way to settle my bill)? Can't this come with some sort of warranty? I would feel terrible about buying something that I already bought.

FAQ: How do I get help or support? A. Please email us at help@onlycoin.com. We currently only offer email support. Our support hours are 8 am-5 pm PT Monday-Friday.

RAC: That sounds vaguely uninspiring.

More on the Exponential Discount Rate

Yesterday, I wrote about the wonderful application of economic theory to a dilemma from Seinfeld. The paper I mentioned uses an exponential discount factor to model how people value pleasure today versus pleasure in the far future.

I came across another example of this concept in a passage from a paper on the food stamp nutrition cycle. The author's first paragraph, copied below (emphasis mine), discussed the implications of the exponential model, before quickly abandoning it for alternative approaches:

Consider a consumer who is indifferent between enjoying one additional dollar of consumption today and 99.6 additional cents of consumption tomorrow. Such an individual has a daily discount factor of 0.996, and if she is an exponential discounter her annual discount factor will be about 0.23 (corresponding to an annual discount rate of about 146 percent). She would therefore strictly prefer 24 dollars of additional consumption today to 100 dollars of additional consumption one year from now, and would happily accept seven cents today in exchange for 100 dollars in five years.

If you ever so slightly prefer consumption today over consumption tomorrow, you'll prefer pennies today over huge amount of money in the far future, according to the model.

What should economists do in the face of such a surprising result? It's a tough question. We could call the conclusion absurd and modify the model until it produces an alternative conclusion that sounds more reasonably. Or we could go against our intuition and attempt to test this result empirically.

Metro 1, Econ 0

There's an old joke among free-market types where one economist sees a $20 on the ground and delightedly bends over to pick it up. The other economist scolds him for the effort, saying, "If there really were a $20 on the ground, someone would have picked it up by now. It must be an illusion."

Today, I head to the Metro for the evening commute. There are two turnstiles to enter and one to exit. Yet there is a huge line of people behind one of the enter turnstiles while the other is vacant.

I reason: if the other enter turnstile was working, someone would be using it. So I write it off as broken.

After I've waited behind 8 or 9 people for the one good turnstile, someone walks by and gets through the "broken" one without incident. I follow behind, through the turnstile that's been there all along.

So much for rational markets ...