Balkinization  

Tuesday, February 10, 2009

Airlines and Opting Ethics

Ian Ayres

Crosspost from Freakonomics:

Here’s a post with my co-author and colleague at Yale Law School, Jonathan Macey. Jon is the author of the just-published book Corporate Governance: Promises Kept, Promises Broken.


Airlines and Opting Ethics

By Ian Ayres and Jonathan Macey


Some airlines and travel sites are trying to goose their revenues by running a new opt-out insurance scam. As Tribune Media Services reports:



When Angela Gross buys a ticket through Frontier Airlines’ web site, it tacks on an extra $10.95 for travel insurance. How did it manage to do that? By having a [pre-]checked box on the booking screen that she had to opt out of. Now Frontier is balking at a refund.


If you’re not paying close attention while finishing your ticket-purchase transaction on the web, you may well be on the hook for an extra insurance fee.


Pre-checked boxes committing people to receive stuff unless they affirmatively opt out have been around for years. But until recently, failure to opt out just means that you are likely to receive spam because you have agreed to have your contact information shared with other vendors. Like most others, we have been caught asleep in the past only to find ourselves deluged with hordes of subsequent emails containing unwanted “special offers.” What’s new about the latest wave of opt outs is that very prominent retailers are brazenly adding services that will increase the upfront price of their services unless the customer affirmatively opts out.


We learned about these shenanigans first hand. About a month ago, Ian was checking in at an airline kiosk and was almost tricked into paying $75 for a coach seat with a little extra legroom.


The kiosk touch screen was designed with the standard “continue” button in the lower left-hand corner of the screen. But after hitting several “continues,” Ian landed on a screen with a button already set in the “accept” position. It took Ian a moment to figure out that he was about to agree to pay a $75 seating upgrade fee and then some additional time to find the by-no-means-obvious button on the screen that he had to click to avoid the upgrade — and the fee — and continue with his check in.



The upgrade at the kiosk did not involve a pre-checked box. But by putting the “accept” button in the lower left-hand place — where users had become accustomed to clicking, having just clicked there several times — the airline (diabolically) created an ingenious sort of positional opt out. To avoid the fee, the customer has to stop doing what she’d been doing and physically move her hand to another part of the screen.


Jon was the near-victim of the more explicit opt-out scam that involved more serious money. Shortly after reading about Angela Gross’s experience with Frontier Airlines, Jon happened to be using Orbitz.com to buy five airline tickets from New York to Paris for himself and his family. After buying the tickets and after logging out of Orbitz, Jon received an email from an insurance company purporting to thank him for buying … you guessed it … trip insurance!


By not noticing that Orbitz had used a pre-checked box, Jon had “agreed” (by failing to disagree) to a whopping $156.90 trip insurance addition to his airline ticket price, taxes, and airport fees. The fun really started for Jon when he went into fast forward to set the matter right. It turns out that even though customers can go back and electronically cancel the airline tickets that Orbitz sells, customers cannot cancel the insurance that Orbitz sells through the website where it was brought. In fact, the insurance could not be canceled through Orbitz at all, but only by contacting the insurance vendor Access America directly by phone.



When Jon reached the insurance company, he learned that the insurance was only refundable if the policy is canceled within 10 days of “purchasing” the policy (i.e. after most people received their credit card statements for the purchased tickets, and after many customers had already gone on their trips, thereby “using” the insurance!). In order to cancel, Jon was required to listen to a pre-recorded message informing him of nothing (other than that the company was trying to raise the transaction costs associated with canceling their insurance).


When Jon complained to Orbitz, the company sent him the following response:


INSERT DESCRIPTION


It’s refreshing to receive a form letter that says “I understand … you are not happy.” But the message misrepresented how Orbitz’s website actually functions. The OrbitzTLC team’s message asserted that travel insurance was added to Jon’s reservation because he manually checked the box “Yes, Add Airline Ticket Protector for USD …” In other words, Orbitz erroneously claimed that its program required a customer to opt in to it. In fact, the program required Jon to affirmatively opt out of the program in order to avoid “buying” the insurance.


To make sure, we went back on Orbitz.com and found that, consistent with Jon’s recollection, the travel insurance option, unlike numerous other options on the website is pre-checked, comme ça:


INSERT DESCRIPTION



In some ways, all’s well that ends well. Access America did finally refund Jon’s money. And a very nice and knowledgeable Orbitz employee told Jon that the travel insurance is only opt out for foreign flights and tourist packages.


But the episode raises troubling issues:


What’s to stop retailers from pre-checking a $300 or $3,000 charge for trip insurance, or pre-checking a life-insurance policy in case the plane crashes?


What does the trip insurance actually give you that you don’t already have? The Access America policy is incredibly narrow in scope — basically only covering you if you get ill or die because of an unexpected event (no pre-existing conditions). We’re betting that many airlines would give you a refund under such circumstances, even without buying the insurance. Other insurance companies do offer insurance that includes coverage for pre-existing conditions.


What happens to people who don’t learn of the coverage until after the 10-day cancellation period has run? (Jon was told that Orbitz might work with the vendor to persuade it to cancel the insurance protection under certain conditions, but that: 1) the decision to cancel and refund was up to the insurance company, not Orbitz; and 2) if the trip was completed no refund would be allowed.


How many needless cancellation hoops (making six rather than one call, listening to a 20-minute message, submitting an affidavit) can be imposed as preconditions to cancellation?


We’re particularly concerned that Orbitz sent Jon an email that inaccurately described this program as an opt-in rather than as an opt-out program. We assume that this misrepresentation by Orbitz was inadvertent and will be corrected. Jon was told by the Orbitz representative who called him that the earlier Orbitz email was incorrect and that the issue had been passed along to “management.”



But the 800-pound gorilla in the room is the opt-out scam that began this entire travail. In their recent best-selling book Nudge, Cass Sunstein and Richard Thaler show that default setting can be a powerful force for the social good. But default setting can also be a powerful force for mischief if controlled by those with ill intent.


We wonder whether the fact that opt outs were only recently introduced in the travel industry — and only after Nudge was published — is merely coincidental. Perhaps the insights in the book provided valuable, if unscrupulous, tips to the marketers who help design websites for the travel agency.



As lawyers and economists, we would have predicted that reputational sanctions would have kept Orbitz from engaging in these sorts of shenanigans. Experience, however, is proving us wrong.


Particularly troubling is the fact that Orbitz must know what it is doing, because it sometimes uses opt-in marketing strategies, and it sometimes uses opt-out marketing strategies. It seems to us that there must be a reason for this.


If other retailers follow suit, this might be a place where a light legal intervention is called for. We, of course, would allow consumers to buy trip insurance or any other add-on service they really want. But it might be wise to require that any add-on services that add to the advertised price be offered solely on an opt-in basis.



Comments:

New? I don't think so. Rental car companies have been doing this with their car insurance for years. Their car insurance is likewise a poor product, costing a lot for the coverage provided. And their way of getting customer assent is likewise ethically challenged: the customer is seldom informed he even can opt-out.

However, the fact that Orbitz's scam is not new doesn't make it any less of a scam.
 

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"In their recent best-selling book Nudge, Cass Sunstein and Richard Thaler show that default setting can be a powerful force for the social good."

So Ian, what is the "social good"? Is there a representative agent? Or do you believe somehow that Sunstein and Thaler have been gifted by the gods so that they can make valid interpersonal welfare judgements? Nudge is about getting people to do what you want. Calling it "Social good" is like putting lipstick on the proverbial pig.
 

Articles interesting and useful,You may want to take the time to read my article about Find the Cheapest Airline Tickets or Really Cheap Airline Tickets
 

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