Threshold of Pain Theory, Revisited

What is your financial threshold of pain, and does it change over time - and could it change suddenly?

In a very early post in this blog I discussed the threshold of pain theory.  I first learned about it while I was talking with an engineer for what was then called Bell Atlantic, which is now part of AT&T. He worked in the cell phone division and I was writing a patent application for cell phone technology.

I asked him why cell phone service wasn't better.  Bear in mind this was back in the 1990's when cell phones were still a new thing and mostly analog.  Hand-held cell phones were just becoming popular, replacing the built-in car phones we had only a few years before. Smartphones and digital technology were still years away.  Texting was just starting to become a thing - and they charged extra for it - by the text!

Since the cell phone system was largely analog, it required a lot of bandwidth for voice communication.  And back then, there were not a lot of cell towers, even in major cities.  When you left major cities, service was pretty sparse.

"So, why don't you put in more cell towers?" I asked.  And he explained to me the threshold of pain theory.  The company could have installed more and more cell phone towers all over the city and indeed, even the countryside.  But people wouldn't necessarily appreciate the improved service, nor would they be willing to pay more for this improved service.

Unlike traditional landlines, which were what we called POTS or "plain old telephone service" back then, cell signals were weak and variable and dropped calls were very common.  And as the engineer explained to me, people expected this with cellular technology as it was basically Voodoo at that point.

When I grew up, nobody had a car phone much less a hand-held cell phone.  Only rich executives or special people had car phones in their cars.  I remember watching the movie Hellfighters with John Wayne, who played an oil well firefighter.  He had a car phone in his 66 Chevrolet Impala SS.  That was pretty slick stuff!  But every time you picked up the phone he had to hail an operator over the radio to make a call. Clearly there wasn't enough bandwidth for more than a few people to have car phones.

Once cellular telephones became popular, almost everyone could afford one - and eventually everyone would have one.  And the first time you made a call from inside your car or while walking down the street, it was like magic - because we were used to making phone calls from the only phone in the house - which was tethered to the wall in the kitchen.

So, back then, we were not amazed that cell service was so spotty and calls were dropped.  We were amazed the damn thing worked at all.   In fact we were ecstatic.  Our threshold of pain was very high and we were willing to tolerate dropped calls and poor service - something we would not have stood for with a landline.  The phone companies knew this and realized there was no point in putting up extra cell towers, as they would just be wasting money would have to raise their rates.  People were used to poor levels of service, and therefore the service didn't need to improve.

Of course, eventually it did.  When we moved to the island, there were only three cell towers on here.  I had to erect an antenna on the roof of my house - a directional flat plane antenna - along with a line amplifier. This amplified the signal from my handheld cell phone to a full 4.5 watts and also enabled reception of the signal from the tower which I aimed to my antenna too.  For the first few years we lived here, I had to use such a contraption in order to get to make and receive cell phone calls on my old Motorola flip phone.

But a funny thing happened.  Within a few years, the cell phone companies reached an agreement with the island authority to erect cell phone antennas on the various water towers here on the island. And they didn't just put on one antenna, but rather dozens of antennas ringing the water towers as well as huge cables snaking down to the legs of the towers into enormous prefab buildings to house the equipment needed to generate all the signals necessary to run such a system.

I asked one of the engineers if all of the weight from those antennas wouldn't exceed the design load of the water tower.  He replied that they just lowered the water level in the tower by a corresponding amount to compensate for the additional weight of the antennas.

Well, needless to say, we get really good cell service now, and I took down my antenna, after it was inactive for several years - and finally threw it away (it was covered with moss and mildew). The line amplifier I think also got thrown away somewhere along the line as well.

What changed between now and back in the 1990's was that our threshold of pain was lowered.  We no longer tolerated having dropped calls, and as more and more cellular traffic became digital - in the form of texting data and even videos, we expected more from our cell phones.  People were willing to switch carriers to get increased bandwidth and better signal.  As the market matured, the competing companies had to sell quality as well as price point.

A similar thing happened in the television industry.  When I did work back in the 1990's for cable television equipment manufacturers, I learned a lot about video encoding and compression systems.  I also wrote a number of patents for VGA systems and types of video compression, including MPEG. And what the engineers told me regarding videos was the same as what the Bell Atlantic engineers told me regarding cell phones. They realized that most people don't notice minor defects in a picture. So there's little point in spending the time and money and bandwidth to improve the quality of a picture if people don't notice it.  Their threshold of pain with regard to video quality might be very high, and you can provide a pretty fuzzy picture and people will think it is acceptable.

In the early days of cable television and computers, low resolution images were acceptable, provided that certain portions of the images were in sharp focus - the portions that people are actually looking at.  Once you could figure out what those portions were, you could compress the hell out of a video signal without any video degradation that would be apparent to the eye.

But of course today, we have high definition video displays and even something called a 4K display.  Many people argue that most folks can't even discern the difference between regular, HD, and 4K, but people pay extra for it, anyway.  The bandwidth necessary to transmit video signals at that high resolution is pretty staggering, and most of it is unnecessary.   But nevertheless, our threshold of pain with regard to video signals has dropped dramatically and we now demand much higher resolutions than in the past.  We are no longer content just to get 500 channels on Cable - now we want them in HD or preferably sent over an internet path, digitized.

The threshold of pain theory has other applications as well, including in economics and commerce. And getting back to cable television, that is a prime example where the threshold of pain has been raised continually.  But you can only raise the threshold of pain so far before it collapses and a catastrophic fashion - as predicted by catastrophe theory.

We like to watch old videos on YouTube. One of our favorites are reruns of "What's My Line?" - which was a game show which is broadcast for over 15 years from the 1950s through the mid-1960s. It was broadcast on Sunday night and was considered very sophisticated for the time.  Rather than celebrity panelists who were famous for being famous, they had columnist Dorothy Kilgallen, glamorous  and intelligent Broadway star Arlene Francis, and publisher Bennett Cerf.  It's hard to believe that a publisher would be considered a celebrity today.  Most people don't even know what a publisher is - or a book is, for that matter.

But what is fascinating about the show is how few the commercial breaks were.  They had a primary sponsor for the program whose name would appear in front of the panel, and there would be a few commercial breaks for that sponsor as well as one for the "alternate sponsor."

Today, with many cable TV channels, the ratio of advertisements to programming is approaching or exceeding 50%. You watch five minutes of a History Channel "documentary" and then are treated to five minutes of advertisements. When the program comes back on, you were treated to a recap of what the previous five minutes of program were all about, so you can remember what the program was - or if you were channel surfing, parachute yourself into the middle of the program.

How did that happen? As a client of mine once explained, it's like the boiling the frog theory.  He was a nice gentleman from Alabama and in a charming southern accent explained to me how, if you put a frog in a pot of boiling water, he'll immediately jump out.  But if you put a frog into a pot of cold water and slowly raise the temperature, he won't realize that he's being boiled to death, and thus will just sit there contentedly until he's dead.

Now I mentioned the boiling frog theory before, and many people took me to task for that, pointing out that if you put the frog into the boiling water he be killed instantly and would not have a chance to jump out.  Whereas, if you put a frog in a pot of cold water, he will sit there as you slowly raise the temperature, until he boils to death.   Of course, in reality, he will likely jump out immediately - and people have actually tested this.  I hate hearing comments like that, because they are such spoilsport. It's a goddamn metaphor people, just deal with it.

The point is, when you change something very slowly people might not notice, initially. Their threshold of pain increases over time and they will tolerate more and more discomfort.  That is, up to a point, but we should get to that later.

So over the years from the 1960s to the 1970s, the amount of ad time increased in television.  And as I noted in an earlier posting, I remember quite clearly the first time I was watching television and I saw an advertisement which was not for a product or service, but was an advertisement for more television.  I knew then that something was changing - they turned up the heat in the pot of water and the threshold of pain had been raised.  Today, advertisements for television on television are as common as dirt.  But it one time such things simply did not exist.

My threshold of pain turned out to be pretty low. I was pretty fed up with actually paying for television - something that had been free in years past. Why pay to watch television and be shown advertisements?  Don't they get enough money from the advertisements to cover the cost of the thing? And of course, the answer is they want to make a shitload more money, which they did.

Eventually, the ad content kept ratcheting up to the point where I would change channels when the ads came on, knowing that there were at least five minutes of ads and it will allow me to see what else was playing.  I became one of the legions of "channel surfers" and ended up spending hours watching television but not actually seeing anything.  I became frustrated and decided not to watch cable television anymore, or any television for that matter - and that was back in the early 2000s if not before.

Some people have a much higher threshold of pain than I do and they continue to watch television even to this day.  Although I notice most of them just leave the television on as background noise. Some people call this the "talking lamp" which is present in nearly every household.  It's on all the time, even though nobody's watching it, or if they watch it, they only glance at it occasionally.  It's like a big subliminal advertisement.

Of course today, there's something called the cord-cutting movement.  It's slowly gathering steam but it will be awhile before it has a major impact on cable television.  But when that impact is felt it will appear to be very sudden.  An alternative to cable is emerging in the form of online streaming.  Even though it's been around for many years, it's still in its infant stages.  As I noted in earlier posting, I started online streaming by using a surplus laptop and plugging its VGA port into a flat screen TV that I purchased.  That was a decade ago, and today you could buy a television with a button on the remote that plugs you directly into Netflix.  You don't have to be a computer geek in order to stream things online, anymore.  The threshold of pain for switching to streaming is made very low.

While one can slowly increase their customer's threshold of pain, there eventually reaches a point where something breaks and they all leave at once.  And this is true in politics as well. We're watching this happen in real-time in Venezuela as we speak. The economy in that country is slowly melting down due to mismanagement by the communist government.  It is the inevitable end of all communist governments - mismanagement, corruption, and insider dealing are the norm.  People have no incentive to work because they're not being paid - and the entire economy collapses.

And of course, the communist leaders always blame outside forces for their predicament, and use this excuse to prop up their governments for years on end.  But eventually people's threshold of pain reaches a limit and they can't stand anymore and a new revolution occurs, and the old order is thrown out.  But often that threshold of pain has to be very, very high and it takes awhile for people to finally get fed up.

People are starting to starve in Venezuela and people are dying from lack of medicine.  It's unclear as to how long they can hold up under these circumstances before they finally snap.  But when it does happen, it will be very sudden, I think.

What is this have to do with your personal finances?  I think threshold of pain theory can also be applied there as well.  It's very easy, as you progress in life, to incur more and more debts and spend more and more money, often on frivolous or trivial things.  You get used to a certain amount of debt load and a certain amount of monthly payments which neatly dovetail with your monthly income.  You start to think this is normal, and your threshold of financial pain increases accordingly.

Over time, of course, you aren't actually getting ahead, you just spending money faster than you're making it, robbing Peter to pay Paul in order to have things today that you'll pay for tomorrow. Your threshold of pain - in this case the pain being debt - increases over time, until you start to think of hundreds of thousands of dollars of debt as being a normal condition in life. You start to hear things from your neighbors and friends such as  "debt is a normal part of life!" or "I'll never pay off my mortgage!" or "student loans are inevitable - like a mortgage on life!"

These statements are akin to the man on the torture rack convincing himself, "Hey, it isn't so bad, after all!"

When you say these things to yourself or hear them from your neighbor, you're just acclimatizing yourself to the new level of pain that you were experiencing.  You are now basically an opioid addict trying to suppress the chronic pain that is racking your body.

What threshold of pain theory illustrates, however, is that eventually something has to give.  People's threshold of pain eventually breaks and product and service providers no longer can get away with offering crappy service, as competitors will step in and offer better service for  a lower price. Low-resolution videos are no longer acceptable, not when high resolution is available from other sources. And eventually the angry mob overthrows the dictator, if the dictator cannot feed the angry mob.

On a personal level, eventually if you acquire more and more debt to have things today that you'll pay for tomorrow, something will break.  And it could be precipitated by the loss of a job or another economic setback, or a setback in the overall economy.   But when it does break, it breaks all at once and very suddenly - or at least appears to be very sudden, even though the warning signs were there many years ago.  You can build up your threshold of financial pain and endure it for quite a while, but a better approach, I think, is to keep your threshold of pain low, and avoid the resultant trap.

Jump out of the pot right away, before the water even gets warm!