31 ms·

Sometimes it's painful to realize how not economically rational people are.

by lox 10y ago

jimhefferon 10y ago
I know, right? Sometimes when I am sitting through an econ talk it is very hard not to say, "But your assumption one is wrong."
- DanBC 10y ago
  Coincidentally, I submitted this interview an hour ago. "An interview with Professor Richard Thaler, godfather of behavioural economics" http://www.spectator.co.uk/2016/06/id-have-said-lets-not-do-this-what-osborne-never-asked-his-nudge-guru/ http://www.spectator.co.uk/2016/06/id-have-said-lets-not-do-... https://news.ycombinator.com/item?id=11927635 https://news.ycombinator.com/item?id=11927635
icebraining 10y ago
Why is this evidence of economic irrationality? I'm not a fan of tipping as an institution, but as a buyer, lower prices with tipping gives one more flexibility to choose how much to tip.
lucio 10y ago
tipping is not rational?
- gilgoomesh 10y ago
  I think the argument is that the price to the consumer doesn't change yet consumers changed their habits anyway.
  - lucio 10y ago
    But he price is changed. You're forced to tip a specific amount regardless of quality of service. Most people do not fancy to be forced.
  - reidacdc 10y ago
    Maybe on average the price didn't change, but in the "no-tipping" case, customers can no longer self-select into their various price points. What businesses actually want out of their pricing model is to have a bunch of people pay the maximum amount they'd be willing to pay for a uniform set of products, even though that maximum varies across the customer population. Having a single price for each of your products necessarily constricts your customer base, and it's actually pretty rare -- even your corner drug store publishes coupons in the shoppers' weekly to help bring the cheapskates in the door. Eliminating tipping puts this restaurant into the "single price point" game, forcing them to pick a number that balances not only revenue per customer against customer volume, but also some intangibles -- having a big waiting list catches people's attention and makes your place seem more desirable, for instance, and lets some people pay with time instead of money, broadening your customer base. Plus the marginal efficiency of the kitchen is pretty high if its going full-bore all the time, and it likely makes better use of perishable supplies that are already paid for. My guess is that what they have learned is that there's no single number you can pick that's "the same" as in the tipping scheme. The article talks about "high-energy millenials" who were put off by the high prices. This suggests a price-sensitive group, so probably not especially high tippers, but with some other feature that makes them valuable -- maybe they buy low cost but high-markup items, or maybe they help create an atmosphere that brings in some high rollers, or maybe they marginally increase the volume in the off-peak, allowing the kitchen to make better use of those already-mentioned already-paid-for, perishable ingredients. Tl;dr a cost distribution is not fully characterized by its average, the shape also matters.

Sometimes it's painful to realize how not economically rational people are.

by lox 10y ago

Sometimes it's painful to realize how not economically rational people are.

I know, right? Sometimes when I am sitting through an econ talk it is very hard not to say, "But your assumption one is wrong."

DanBC 10y ago
Coincidentally, I submitted this interview an hour ago. "An interview with Professor Richard Thaler, godfather of behavioural economics" http://www.spectator.co.uk/2016/06/id-have-said-lets-not-do-this-what-osborne-never-asked-his-nudge-guru/ http://www.spectator.co.uk/2016/06/id-have-said-lets-not-do-... https://news.ycombinator.com/item?id=11927635 https://news.ycombinator.com/item?id=11927635

icebraining 10y ago

Why is this evidence of economic irrationality? I'm not a fan of tipping as an institution, but as a buyer, lower prices with tipping gives one more flexibility to choose how much to tip.

lucio 10y ago

tipping is not rational?

gilgoomesh 10y ago
I think the argument is that the price to the consumer doesn't change yet consumers changed their habits anyway.
- lucio 10y ago
  But he price is changed. You're forced to tip a specific amount regardless of quality of service. Most people do not fancy to be forced.
- reidacdc 10y ago
  Maybe on average the price didn't change, but in the "no-tipping" case, customers can no longer self-select into their various price points. What businesses actually want out of their pricing model is to have a bunch of people pay the maximum amount they'd be willing to pay for a uniform set of products, even though that maximum varies across the customer population. Having a single price for each of your products necessarily constricts your customer base, and it's actually pretty rare -- even your corner drug store publishes coupons in the shoppers' weekly to help bring the cheapskates in the door. Eliminating tipping puts this restaurant into the "single price point" game, forcing them to pick a number that balances not only revenue per customer against customer volume, but also some intangibles -- having a big waiting list catches people's attention and makes your place seem more desirable, for instance, and lets some people pay with time instead of money, broadening your customer base. Plus the marginal efficiency of the kitchen is pretty high if its going full-bore all the time, and it likely makes better use of perishable supplies that are already paid for. My guess is that what they have learned is that there's no single number you can pick that's "the same" as in the tipping scheme. The article talks about "high-energy millenials" who were put off by the high prices. This suggests a price-sensitive group, so probably not especially high tippers, but with some other feature that makes them valuable -- maybe they buy low cost but high-markup items, or maybe they help create an atmosphere that brings in some high rollers, or maybe they marginally increase the volume in the off-peak, allowing the kitchen to make better use of those already-mentioned already-paid-for, perishable ingredients. Tl;dr a cost distribution is not fully characterized by its average, the shape also matters.