In addition to teaching behavioral economics courses, I also teach a course for music industry students entitled “Contracts, Consumer Behavior, and Market Analysis” that is basically economics-y stuff for music kids. (I’m still working on getting Mick Jagger to come give a guest lecture.) I find it interesting (but not entirely surprising) that music types, behind their often flamboyant exteriors, are often very astute entrepreneurs, business owners, etc., so I really like finding creative evidence of this phenomenon.
Take Van Halen, for example. On the surface, the group is famous not only for its music but also for stunts such as trashing green rooms over the presence of brown M&Ms, and it’s easy to write off such behavior as simply being symptomatic of a 1980’s rock diva mentality. In reality, however, the brown M&Ms served an important purpose from a contracting perspective.
Think about it- wouldn’t it be nice to have an easy way to observe whether your counterparty has paid attention to all of the details of a complicated contract? As it turns out, the brown M&Ms served exactly this function. See for yourself, directly from David Lee Roth:
Since Van Halen’s (long) tour rider stipulated M&Ms with the brown ones taken out, the group knew that they needed to double check a lot of safety items for the show if they saw brown M&Ms (or no M&Ms, for that matter) in the backstage area. They also knew that they could feel comfortable that the contract provisions had been fulfilled if they saw a bowl of M&Ms with the brown ones removed. (I’m pretty sure that trashing stuff was for some combined purpose of making the incident memorable and entertaining one’s self.) This is pretty smart, since it’s far more efficient to use this as a signal (the canary in the coal mine, in a way) rather than go around and check everything at each show. It’s even smarter that the signal was crafted in the fashion of typical rock star douchebaggery so as to not arouse suspicion.
This contract strategy got me (and my class) thinking in more detail about the necessary features that such a contract must have. First and foremost, the signal used has to be unusual enough to avoid the risk of “false positives” where the contract provision is satisfied for reasons unrelated to attention to detail. In this case, it was important that the contract stated both “M&Ms” and “no brown M&Ms,” since it’s easy to unintentionally not provide no M&Ms at all and comparatively difficult to randomly provide all non-brown M&Ms. (I am reminded of Lisa Simpson’s tiger-repellent rock whenever I think about this.)
Second, since this strategy was used for multiple stops on a tour (and thus with multiple counterparties), it’s important that people not get wise to the setup, again to avoid false positives. In this sense, the diva-ish behavior was probably counterproductive, since it gave the media an excuse to make common knowledge Van Halen’s issue with brown M&Ms. Given the circumstances, it probably would have been a good idea to change the signal item for each stop on the tour. It would be an even better idea to be very careful that it’s not obvious which item is the signal item, since otherwise people could just thumb through the contract looking for the absurd clause to satisfy.
Lastly, it’s important to put a very severe punishment in place for failing to fulfill any of the contract provisions. Technically speaking, this doesn’t affect the effectiveness of the signal, but it makes sense if prevention is better than reaction, since it makes it less likely that dressing rooms need to be trashed. Though maybe that’s part of the fun.
Update: How could I have written this entire post without including the following? Something tells me David Lee Roth and I would have a lot to talk about. =P