### Predictability

What does this say? The New York Times Magazine promises a story on "two small literary-intellectual magazines try to make a different kind of big noise" and I immediately know them? Obviously, n+1 and The Believer (though the title tips you off to the second). If they've reached me (and the New York Times Magazine), aren't they past being condescended to? And I was sort of hoping to come across magazines I hadn't heard of, oh well.

More precisely, the implied discount rate is 25 percent a year ($16 for the first year; if you buy the second year simultaneously, you pay $12 more: hence a difference of 4 and 4/16 is 1/4). At that implied discount rate you'd never receive $150 in value; in fact, the present discounted value of receiving the magazine for an infinite amount of time at that discount rate is $60. You'd need an implied discount rate of 10.666 percent to have even a present discounted value of $150 over an infinite amount of time. Thus proving that the structure more represents that you'd buy a lifetime subscription to give them some extra cash than to make a truly rational decision.

This, however, falls apart because your discount rate is probably far lower than 25 percent. The structure then really shows that they want to encourage you to subscribe for a longer amount of time, to gain cash now.

**Update**: If you go to the n+1 website and look at subscriptions, you'll notice an interesting subscription structure: $16 for one year; $28 for two years; and $150 for a lifetime. Crudely, this implies that if you expect the magazine to last for more than 10 years, you should buy a life-time subscription.More precisely, the implied discount rate is 25 percent a year ($16 for the first year; if you buy the second year simultaneously, you pay $12 more: hence a difference of 4 and 4/16 is 1/4). At that implied discount rate you'd never receive $150 in value; in fact, the present discounted value of receiving the magazine for an infinite amount of time at that discount rate is $60. You'd need an implied discount rate of 10.666 percent to have even a present discounted value of $150 over an infinite amount of time. Thus proving that the structure more represents that you'd buy a lifetime subscription to give them some extra cash than to make a truly rational decision.

This, however, falls apart because your discount rate is probably far lower than 25 percent. The structure then really shows that they want to encourage you to subscribe for a longer amount of time, to gain cash now.

## 0 Comments:

Post a Comment

<< Home