Tuesday, June 30, 2009
Take a look at the menu above (click for a larger version). It's a prix fixe meal recently offered at a Tel Aviv restaurant. The prices are quoted in New Israel Shekels (NIS), worth about as much as an American quarter. The three-course meal costs 115 NIS, or around $30. You've got a choice of five entrees. Which would you choose?
The menu is from an experiment by behavioral economists Ori Heffetz and Moses Shayo, of Cornell and Hebrew University, Jerusalem. They got a fancy Tel Aviv restaurant to play along as they manipulated the menu prices, specifically the little prices in parentheses telling how much the entrees would have cost a la carte. They wanted to test whether more people would pick an item just because it was more expensive. (Did you choose the shrimp gnocchi?) Those who pick up many checks on dates might swear it works that way, but Heffetz and Shayo showed it didn't. The a la carte reference prices did not affect diners' choices.
“Maybe, sometimes, old-fashioned economics is just about right,” Shayo told The New York Times' John Tierney. “Maybe when it comes to food, people do have reasonably stable preferences. Some people like shrimp and some don’t, even if it’s worth a lot of money.” The Times article picks up on that thought, offering the research as a corrective to the current wave of Homo economicus-bashing.
Well, kind of. Nobody disputes that taste can trump money, especially when money isn't truly at stake. More generally, it's long been known that reference prices affect estimations of prices — but choices are a whole different matter. In the late 1960s, Sarah Lichtenstein and Paul Slovic demonstrated this in some classic experiments. Volunteers were required to assign prices to wagers and, separately, to choose between pairs of wagers. Their choices and prices were often contradictory. That is, the volunteers would insist that wager A was worth more than wager B… but when given a free choice of the two, they would consistently chose wager B. This was especially paradoxical because the volunteers were simply trying to maximize money (not balance a taste for stuffed artichokes against a desire to get the best "deal").
Obviously, both choices and prices are important in the real world. There is now a applied science of menu design, based at least loosely on psychological principles. The practical restaurateur is mainly concerned with nudging diners to select high-profit items. One trick is this: If a restaurant wants to push a $30 steak, it will put it on the menu next to a $80 Kobe steak. The latter, even if no one orders it, makes the $30 steak seem reasonable in comparison. And it causes more diners to choose the $30 steak rather than something else, or so menu consultants believe. The Heffetz-Shayo menu was unusual in that it gave prices that don't apply (you're going to pay the prix fixe no matter what you choose). Conceivably, some diners might have picked the most expensive item, to get maximum value (the hypothesis Heffetz and Shayo were testing), while others might have momentarily forgotten about the prix fixe and picked something inexpensive, to get a bargain (as the menu design trick supposes). It's even possible that the two effects canceled out, contributing to the null result. It might be interesting to see more rigorous testing of the tricks used by menu designers.
News to me: that shrimp, pork, and sausages are popular entrees in Tel Aviv.