The asymmetrical price of friendship

(featured image: geralt via Pixabay)

If you buy something from a friend, you might ask them for a discount – but if you are selling them something, would you ask them for a higher price?

Humans are social animals. Our interactions with relatives and friends make this abundantly clear: all day long we do small – and sometimes large – favours to them (and they to us), we give and receive gifts, and we help each other out. We don’t even keep a tally, and yet almost everyone keeps at it. But, oddly, there is one favour that always goes in one direction. How come?

Commercial transactions are a key characteristic of our society: we work for money, and then we spend some of that money to buy the goods and services we need and want. But while this undoubtedly contributes considerably to our overall wealth and wellbeing, there may be an even more important social domain alongside this market domain.

The magic of the social domain

At work, we offer to bring back something from the pantry or the drinks machine to the people sitting nearby. At home, we help a neighbour lifting a heavy bag of garden waste into the boot of their car, or mow the grass near the verge in front of their property when we are mowing in front of ours. We shuttle both our own children and their friends to football practice or afterschool gym class and back. We give a colleague a lift to the garage when their car is ready for collection after being serviced. We spend time with our sister’s daughter preparing her for an economics test.

None of these actions, or of the many more ways in which we extend favours to the people in our social network, give us any obvious material benefit, only effort, inconvenience, time and sometimes even out of pocket expenditure. Why do we do this? The magic is the concept of reciprocity.

I wish I had someone to scratch my back (image: Spyros Papaspyropoulos/Flickr CC BY NC ND 2.0)

There is more to this than a transactional “I scratch your back, you scratch mine” interpretation. Perhaps among the stronger of our social norms, reciprocity both captures our expectation that we can count on others in our social group when we need a favour, and our obligation to step up when we perceive a need among a member of our circle. This is why most people don’t keep count of how many times they have gone to get coffees for the co-workers, or how many miles it is from the workplace to the Volvo and to the Renault dealer. Abuse is rare, precisely because it is such a powerful norm, functioning as an implicit membership commitment to the group.

Even when there is an element of immediate quid pro quo, for example when we are invited for dinner or a stay with friends for a long weekend, we seem to resist allowing social relationships to enter the market domain. We would not dream of paying our hosts in money. Instead, we take an appropriate gift – wine or flowers tend to be popular choices. At most, money might change hands if the person doing us a favour is left out of pocket as a result, but even then, we often resort to a symbolic gift or a return favour.

When money and friendship mix

And yet, there seems to be one intriguing exception. A few weeks ago, in a tweet, psychologist, ex pro poker player and decision expert Annie Duke asked the following: “If a friend of a service provider asks them to do them a favour and discount their price, why isn’t it just as reasonable for the service provider to ask the friend to do them a favour and pay them a premium? If your answer is no, why not?

Expecting a discounted price appears to violate the reciprocity concept that is so prevalent, for two reasons. First, it is very unlikely that a similar favour can be returned. The possibility that the friend benefiting from the discounted price will later also be able to similarly and reciprocally discount their price is remote, both when it concerns a commercial transaction (as Annie’s tweet suggests) and when it is a private sale of a sofa, a motorbike, a work of art or whatever. Now, this in itself is not necessarily an issue: if you help a friend move house, and you stay put where you live for the rest of your life, thus denying your friend to return the exact favour, that probably won’t become a worry. There will be other opportunities for them to support you. And even though there is no de facto exchange rate between carrying a wardrobe up two flights of stairs and a lift to the garage, what matters is the knowledge that you can rely on each other’s help when you need it.

So it is very much the second reason that draws our attention: it involves money. No matter how you look at it, in a transaction where the selling price is discounted in the name of friendship, the buyer benefits, and the seller ends up out of pocket. Even if we assume that over time in the relationship, the buyer enjoying the discount will be able to ‘compensate’ the seller through favours in kind, we can be pretty sure that what will not happen is that the next time, it will be the seller asking the buyer to pay more than the going rate.

Annie’s question is clearly very pertinent: why this one-sidedness?

The mystery of the asymmetric norm

It is a bit mystifying. One possible reason is our old acquaintance, the social norm. While asking for a friend’s discount is common, we simply never see sellers asking for a friend’s uplift (and we can well imagine what the reaction would be!). But that is simply restating the problem: why do we have this asymmetric norm?

I need a favour – it’s got to go to the second floor (image: Dennis Freeland/Flickr CC BY NC ND 2.0)

There are a few other possible forces that may be at play. Discounting is common in commercial transactions – we are all familiar with sale prices, volume discounts, loyalty discounts and so on. These are based on justifiable commercial logic: it’s the most profitable customers who enjoy privileges. And, so the thinking might go, if selected ‘special’ customers receive privileged treatment, then it is not unreasonable to capitalize on the ‘specialness’ of the friendship and ask for similar privileges. Conversely, in commerce there is no reciprocal equivalent: good customers can expect a concessionary price, but good suppliers cannot expect (and less still demand) that their customers pay them a premium.

Another explanation might be that the framing is rather different for both sides. The buyer can defend asking for a discount because even then it is a win-win transaction: the buyer gets a bargain, but the seller still gets a sale, albeit at a lower – and still acceptable – margin. As the seller would (naturally) offer such a price to good customers too, there is not really a loss. A buyer paying a premium would most definitely incur a loss (the service or item could be procured for less from a total stranger), and paying a higher price therefore translates to a straight transfer between friends. That is very different from getting a small reduction on the full price.

And yet, I cannot help feeling that all of this is no more than post-rationalization and looking for justifications. As Annie’s tweet implies, there is no inherent difference between asking a friend to pay a premium and asking a friend for a discount. Both are transfers: one from the buyer to the seller, the other from the seller to the buyer. Yet the former feels wrong and the latter feels right.

This may well be why we are seeing this asymmetric social norm: it is rooted in a shared, profound feeling of right and wrong. We make the decision based on what we feel is right, and then rationalize it afterwards. And when we see decisions in this light, the mystery evaporates.

But then again, what is it that makes us feel that something is right or wrong? One mystery resolved, and another one appears…

About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies, Emotions, Morality, Psychology, Society and tagged , . Bookmark the permalink.

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