Professional Documents
Culture Documents
June 9, 2008
David R. Just is Associate Professor of Applied Economics and Management also at Cornell University 254 Warren Hall, Ithaca NY 14853-7801 607-255-2086 (drj3@Cornell.edu). Brian Wansink is the John S. Dyson Professor of Marketing and of Nutritional Science in the Applied Economics and Management Department of Cornell University, 110 Warren Hall, Ithaca NY 14853-7801, 607-255-5024 (Wansink@Cornell.edu). The authors thank Karla Monke and Anna Davidowitz for help with data collection and Joost Pennings and James D. Hess for earlier conversations.
ABSTRACT
Does the fixed price a person pays for an unlimited service, such as an all-you-can-eat buffet, influence how much is consumed and the perceived quality of the experience? We show that when a persons choice is conditioned on them selecting a fixed price plan, their desire to get a good deal, can lead them to eat more and possibly enjoy it less. A study is reported in which decreasing the fixed price of a zero marginal cost good also decreased its consumption. Specifically, when the price of an all-you-can-eat pizza restaurant was discounted by 50%, customers who were randomly given the discount ate fewer pieces of pizza (2.95 vs. 4.09) than those who had not been given the discount. Price level should have no impact on how much of an unlimited resource is consumed or on ones perceived quality of the pizza. Thus we provide evidence of the sunk cost fallacy in a food consumption context.
It is conventionally believed that aggregate consumption varies negatively with price increases. In unlimited use contexts -- such as all-you-can-eat buffets -- the commonly employed notion of utility suggests that once a purchase has been made, consumption should not vary with price. Declining marginal utility, under such a regime, should lead the consumer to the point where the experience no longer brings enjoyment or utility. Hence, one should eat until their utility of consumption is maximized, and then stop. Alternatively, the behavioral notion of the sunk cost fallacy suggests that an individuals consumption volume may instead vary positively with price. What may partially motivate consumption in these instances is a desire to get ones moneys worth. This is the basic notion that individuals amortize the fixed cost of the experience (product or service) over as many occasions or as much volume as possible. In this way, the price per experience be it a piece of pizza or a round of golf can be reduced to the point where the individual feels they did not pay too much on average. This research investigates the key question: How does pricing influence consumption in a fixed price context? Knowing this will help extend recent work examining consumer choice between nonlinearity of pricing plans by focusing on the condition where consumption is conditional upon choosing a fixed price plan. We examine the impact of fixed pricing in the context of an all-you-can-eat (AYCE) buffet. Because of the growing number of both obese individuals and fixed price restaurants in the United States, this issue is of acute interest and may help answer questions regarding whether new marketing techniques are contributing to the obesity problem.
Following a discussion of the economic literature regarding fixed pricing and the conflicting nature of utilitarian versus hedonic motivations in fixed price contexts, a basic model is proposed. A simple experiment in an AYCE pizza restaurant confirms the sunk cost fallacy. We find that individuals are significantly motivated by a desire to get their moneys worth. This is evidenced by increase consumption of pizza when the cost of the buffet is higher. Implications for policy makers and managers are discussed.
It is easy to see the appeal of such pricing to a manager or service provider. The key trade-off is between extra product costs versus the potentially higher revenue and savings in transaction costs.
buffets provide a greater ability to maximize hedonic (taste) utility for diners by offering greater selection, flexibility, and portion control compared to standard menu restaurants (Peregrin 2001). Recent studies suggest that AYCE can contribute substantially to weight gain. For example, Levitsky, Halbmaier and Mrdjenovic (2004) report that eating at an AYCE dining hall accounted for 20% of college freshmen weight gain. In an obesigenic environment, where 72% of all Americans are overweight (Wolf and Colditz 1998; Allison et al. 1999) our study contributes to a major national policy debate by examining how consumers respond to pricing and quality decisions in an AYCE environment and hence how profit motives may interact with decisions to overeat. A. Motivations for Fixed Pricing From the firms point of view, several possible motivations for offering fixed price plans have been suggested in the literature. Potential motivations include both rational and behavioral models. Rational motivations for fixed pricing plans include increasing sellers profits by exploiting an ability to price discriminate (e.g., Miravete and Roller 2003; Sundararajan 2004), or the results of competitive pricing pressures for goods with zero marginal cost (Fishburn, Odlyzko and Siders 1997). Under these motivations, consumers simply choose fixed pricing plans because they result in a lower cost for the services they employ. Behavioral motivations for consumers and firms to choose fixed pricing plans fall generally under the heading of behavioral industrial organization. For a complete summary of this literature, we refer the reader to Ellison (2006), who highlights the general theme of rational firms exploiting irrational consumers through alternative pricing schemes. Della Vigna and Malmendier (2004) examine how self control issues and delayed costs or benefits can affect firm pricing strategies. In particular, firms can design pricing structures to take advantage of consumer misperceptions regarding future use of a good. For example, a good that provides 5
immediate benefits and future costs (e.g., credit card debt) will be priced to inflate future payments on debt. An individual who believes that they will exercise greater fiscal constraint in the future will anticipate a lower price for their debt than will actually be realized, and consume more. Alternatively, goods that provide immediate costs and future benefits (e.g., gym participation) will be priced to reduce per use payments and increase up front payments. Lambrecht and Skiera (2006) provide a comprehensive review of behavioral studies examining fixed price versus pay as you go options. Behavioral motivations for consumers choosing a fixed price plan include consumer ignorance or inexperience (Miravete 2003), or a consumers inability to determine the lowest price option given their propensity for use (Della Vigna and Malmendier 2006), insurance (Miravete 2002), that consumers simply enjoy flat rate pricing more than piece rate pricing (Prelec and Loewenstein 1998), inconvenience associated with choosing the correct plan (Winer 2005). Our study falls squarely under the behavioral model of fixed price consumption. However, we focus only on consumption behavior given fixed prices rather than the selection between fixed and unit rate plans. Although fixed pricing (versus ala cart or menu pricing) appeals to many segments of consumers (Nunes 2000), consumers may not always get their moneys worth. As many experience with cellular phone plans, fixed pricing can often result in people under-consuming to the point where consumers would have been better off purchasing via a traditional pay by the minute plan (Miravete, 2003). Miravete finds that those choosing flat rate pricing plans tend to be those that place heavier call volume. Consumers appear to respond correctly to the monetary incentives despite total cost differences that are relatively small (less than $5 per month on average). This stands in stark contrast to the behavior reported by Della Vigna and Malmendier (2006), who find that individuals routinely choose flat fee gym memberships when it would be cheaper to pay for short term use. In this case, individuals behavioral response results in an 6
average loss of $600. Hence, there appears to be some evidence that individuals fail to fully assess their options when selecting into flat fee pricing. B. Hedonic versus Transaction Utility The results of Della Vigna and Malmendier (2006) seem all the more astounding if we believe in the get your moneys worth notion popularized by Thaler (2004) as transaction utility. Thaler decomposes the utility from a purchase into acquisition utility and transaction utility. Acquisition utility is determined by the excess value of the good to the consumer minus the value of the money used in acquiring the good. Transaction utility is the notion that individuals derive some utility from obtaining a good deal on the item. Thaler notes that this is context dependent, providing an example from a survey eliciting consumer willingness to pay for beverages. In the hypothetical situation, a friend was to purchase their favorite beer for the respondent and deliver it to them on the beach. Those asked their willingness to pay if the friend was going to purchase it at a hotel resort were willing to pay substantially more than those who were told the friend would purchase it at a run-down grocery store. Thaler suggests that individuals compare the price of an object to a reference price for that context. Thus, individuals are not willing to pay as much for a beverage in a context where they believe it would naturally be cheaper (e.g., in a run down store). More importantly for this study, Thalers notion of transaction utility suggests consumers feel better off when they have paid a low average price for the goods consumed. This has interesting implications for fixed price contexts. In this case, we should see that people vary how much they use the gym based on the price they paid. Because consumers realize that per unit cost drops linearly with consumption quantity, they may believe that consuming more becomes a better bargain (compared to a variable price good). After one has paid for a gym membership, or an AYCE pizza buffet, the only way transaction utility can be increased is by increasing ones 7
consumption of the good. Such an effect should increase the number of visits by those paying for a full gym membership. The impact of perceived unit cost on consumption is well documented. For example, Wansink (1996) finds the per unit cost of product influences consumption given package size. 2 An interesting issue arises when increases in transactional utility conflict with ones distaste for a food or the limits on ones enjoyment from visiting the gym. In the traditional economic model of consumption, an individuals marginal utility from consumption declines as one consumes more. Consider Figure 1, which illustrates a traditional utility of consumption function, with utility on the vertical axis and consumption quantity on the horizontal axis. We will refer to this as hedonic utility which considers enjoyment from consumption apart from transaction utility. The hedonic utility has a distinct optimum at x*. If we consider this to represent the consumption of a food, consuming too little may leave the consumer uncomfortably hungry or at least desiring more. If they consume too much, the consumer may be uncomfortably full, or simply develop a distaste for the food. If the consumer has paid a fixed price for consumption, a desire for transaction utility may increase consumption. If this pressure to consume more is strong enough, it may lead the consumer to eat more than they want in terms of hedonic utility alone, placing them on the downward sloping portion of the utility curve. Satiation and burnout can limit incremental enjoyment (Inman 2001). [Insert Figure 1]
This research underscores the importance of controlling for variables such as package sizes when one examines the impact of taste on consumption. However, while package sizes stimulated increased consumption by 49% and 60% for relatively favorable and unfavorable foods, these results should be considered suggestive, not conclusive. One reason we might see seemingly greater increases among relatively unfavorably tasting products is because there is a ceiling of how much a person can eat, and it may be that people eating favorable-tasting popcorn reach that ceiling more quickly and with smaller containers. Furthermore, the lack of a direct taste manipulation and other possible confounds between variables such as taste and mood states may limit the generalizability of these results.
Herein lies the consumer dilemma. Transaction utility motivations exist because the per unit cost decreases linearly with consumption, yet this is in conflict with hedonic motivations. Decreasing marginal utility holds that sensory ratings decrease with consumption, leaving a decreasing hedonic marginal utility to consumption. 3 C. Testing for The Sunk Cost Fallacy In his landmark article incorporating behavioral phenomena into models of consumer choice, Thaler (1980) cites anecdotal evidence for the sunk cost fallacy. According to the sunk cost fallacy, individuals consider their cost history as well as incremental costs and benefits when making decisions. 4 Consistent with this, Arkes and Blumer (1985) conducted an experiment randomly offering theater goers different prices for season ticket packages. They found that those paying more for the tickets attended significantly more plays within the first half of the season, but about the same number within the second season. We suggest that finding correlations between price and consumption is a weak test of the sunk cost fallacy. Rather the sunk cost fallacy requires that (i) some amount of money be paid up front, (ii) the object of marginal consumption becomes undesirable and (iii) the individual continues to consume trying to recover the sunk costs. If the marginal net benefit from continued consumption does not become negative, then we should expect no correlation between fixed expense and consumption. If we find little correlation between fixed price and consumption, this would not negate the sunk cost fallacy as it may simply mean that all individuals faced positive
3
In a prestudy, 16 college students were asked to eat 77 square inches of pizza that had been cut into 10 square pieces. After each piece of pizza, they were asked to rate the taste of the pizza on a 0-100 scale. On average, after the 4th piece of pizza, ratings dropped at the average rate of 3.4 points (P<.01). 4 Near the end of the section describing this phenomenon Thaler inserts an important footnote that contains nearly all of the evidence for the sunk-cost fallacy (Thaler, 1980, p. 48):I also plan some experiments to test the sunk cost effect. In one pilot study undertaken by one of my students, Lewis Broad, customers at an AYCE pizza restaurant were randomly given free lunches. They, in fact, ate less than the control group who paid the $2.50 normal bill.
net benefits for the consumption of that good (for example with a single use good). In this case all who have positive net benefit should continue to consume. Further, finding correlation between price paid and consumption could happen for two different reasons: (i) Individuals base consumption on price paid trying to recover the sunk cost through consumption even if net benefits have turned negative, or (ii) the individuals preferences for the marginal consumption of the item (irrespective of their desire to get their moneys worth) is affected by the fixed price. For example, if paying a higher price lead one to enjoy the taste of a slice of pizza more, then the individual may increase consumption as a natural result. We examine behavior in an AYCE pizza restaurant with consumption price randomized. However, we additionally take measures of individual assessment of the taste of the pizza consumed. This allows us a more powerful test of the sunk cost fallacy, and greater insight into how such a mechanism may work.
II. Theory
The consumer is motivated by both a desire to get a good deal (transaction utility) and to increase their hedonic utility (Thaler 2004). At any point during a meal a consumer can re-evaluate their transaction and consumption utility, yet over the course of the eating process we suppose the consumer maximizes the utility of hedonic consumption and the transaction. Specifically, let the consumer who has already paid for an AYCE buffet solve (1) max U t ( q | p ) + U c ( q | ) ,
q
where q is the quantity consumed, p is the fixed price, is the amount that maximizes consumption utility, U t ( | ) is transaction utility of consuming q given the price paid,
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transaction utility of consumption increases with price. This model supposes that transaction utility and hedonic consumption utility are compensatory. In other words, one who pays very little for poor quality pizza may be similarly well off as if they had paid a lot for a similar quantity of very high quality pizza. The first order conditions that solve (1) can be written as (2)
t c U q ( q* | p ) + U q ( q* | ) = 0 ,
By monotonicity of U t , the first term in (2) must be positive, so U qc ( q | ) < 0 . Thus, the marginal hedonic consumption utility is negative on average at the optimal consumption level, reflecting that the consumer will over-eat (relative to hedonic consumption utility)
t in order to increase transaction utility. This will always be the case if U q ( | p ) > 0 .
t which is positive if U qp > 0 . In other words, if increasing the price also increases the
marginal benefit of consumption in terms of transaction utility, then increasing the fixed price must increase consumption. Thus the higher the price, the more the individual will eat.
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It is of interest to know if the price paid may directly influence the evaluation of the food. One alternative hypothesis that might explain why consumption in an AYCE context might depend on price is that price may directly affect hedonic utility. Suppose, for example, a higher fixed price leads the individual to take more or less pleasure in the taste. In this case price should influence consumption even if the individual does not consider transaction utility when they consume. Suppose, from (1) that hedonic optimum is a function of price, ( p ) . In this case, reported enjoyment of the pizza should depend on the price paid. Price could influence hedonic utility through two possible mechanisms. First, individuals may take price as a suggestive signal of quality, and may thus believe that the pizza is better quality when they have paid more for it. In this case, p > 0 , leading the individual to consume more
when higher prices are charged. This behavior would be identical to that caused by the transaction utility effect, but has a very different cause. Thus, it is important to differentiate whether price is affecting hedonic pleasure, or simply altering efforts to recover cost. Alternatively, individuals may set taste expectations according to price, and evaluate taste in comparison to the price paid. In this case, we would expect p < 0 ,
leading those who face higher prices to give poorer evaluations of the food. If this is the case, a positive relationship between price and consumption is certainly due to the transaction utility effect. Using the AYCE context of a pizza buffet, we want to examine whether the fixed price a person pays for their buffet influences how much they eat, and how much they enjoy what they eat. We hypothesize that the amount of food a person will eat is
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positively correlated with how much they paid for the food. Thus those who pay more will eat more. Further, we hypothesize that price will impact taste evaluations negatively, supporting the notion of transaction utility as the motivation for greater consumption when higher prices are paid. Consumption is a process that involves numerous decisions about how much to take, what sequence to eat and drink the food, and when to stop. One set of studies estimates the number of these decisions to range from 200-300 each day (Wansink and Sobal 2007). One way the nutrition literature has tried to capture this continuous process is by studying ad labium feeding. One factor that sets this study apart is its investigation of the trade-off between price and the real-time consumption of a hedonic food. Another distinguishing factor is the real-world context where this occurs.
III. Methods
To conduct this research, it was necessary to find an all-you-could-eat restaurant where consumption volume could be unobtrusively measured and where the type (and calorie content) of food could be reasonably controlled in order to provide accurate comparisons across individuals and between conditions. 5 Because pizza can be discretely measured by the piece if uniformly cut, one field context which met these criteria was an AYCE pizza restaurant. Cooperation to conduct such a study was given by the Pizza Garden, an AYCE pizza restaurant one mile south of Champaign, Illinois. The restaurant had an exclusive AYCE pizza buffet that it served Monday through Friday during lunch hours, and an optional buffet or menu service it provided on evenings and weekends. The study was conducted during the exclusive lunch buffet hours on a Tuesday, Wednesday, and Thursday in early April 2005. The between5
For a complete discussion of the use of economic experiments in and out of the laboratory see Levitt and List (2006).
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subjects randomized block design involved a control group who bought the regular price pizza buffet ($5.98) and the treatment group who were given a coupon for 50% off this regular price ($2.99). There was concern that it would not legally be possible to manipulate the total price of the meals. The restaurant did allow us to manipulate the price people ultimately paid by offering a discount for half the participants. When approaching the restaurant door, participants were approached by one of four experimenters and asked if they would be willing to answer a couple questions related to the restaurant. In exchange for their cooperation, the groups of participants who had been randomly assigned to the treatment condition were given coupons for 50% off each of their buffets (along with coupons for free soft drinks). Those groups of participants in the control condition were simply given coupons for free soft drinks. No group was told what they would receive in exchange for their participation until after they agreed to participate. People who were approached in groups (such as those who arrived in the same car) were all assigned to the same condition. Groups were approached in alternating order regardless of their size. That is, the first group was offered the discounted coupon and drink, while the second group was offered only the drink. It was important to alternate the treatments between groups in order to control for different effects that might otherwise be attributed to differences in the time of day or the day itself (such as Tuesday versus Wednesday). The data was collected from 11:30 to 1:30, and the weather was sunny and warm during all three days. Of the 20 groups of people (79 individuals) who were approached, all but four groups (13 people) participated. Three groups declining to participate included, three emergency medical technicians, four men dressed in suits, and a male and female couple. No record was made as to which group they would have been assigned had they agreed to be involved in the study. Another group consisting of four police officers agreed to participate in the study, but were called away 14
after entering the restaurant and before being seated. Thus, of the 70 people who originally agreed to be in the study, complete data was collected from 66. For the purposes of this paper we treat them as refusing the study. Of those approached (both those participating and those refusing) all but the one group of four that were called away, ordered the pizza buffet (95%). Because the pizza buffet was the only non-drink menu item available at the time, and participants were selected only once their intent to enter the restaurant was clear, we believe that all had the intention to purchase the buffet prior to our approach. It is important to underscore that the pizza restaurant exclusively served the pizza buffet during lunch times when the experiment was administered. No menu was provided to order ala cart. People who had selected to eat at this restaurant would have predetermined to eat the buffet. Indeed, no individuals included in either treatment failed to purchase the pizza buffet or decided not to eat pizza. After providing informed consent, people were asked two restaurant-selection questions which were intended to distract them from the true purpose of the study: (1) What other places did you consider for lunch? and (2) Why did you choose this restaurant? They were then thanked and last asked if they would mind answering a short series of questions when they finished their meal in return for a coupon. All agreed. We then gave them a coupon depending on the treatment they had been assigned to. While in the restaurant, pizza consumption was measured by three assistants who served as hostesses. These assistants were blind to the purpose of the study and had no knowledge of which patrons had been randomly assigned to which conditions. They noted how many pieces of pizza each person brought back from the buffet table and how much was left uneaten after they completed their meal. Because these hostesses were continually responsible for busing tables, this was possible to do without raising suspicion. Uneaten pizza was weighed in a back room to 15
more accurately assess what percentage of the pizza taken was actually eaten. Thus, the amount of pizza consumed was recorded as a continuous variable in terms of fractional number of slices. A wide variety of pizza was served (8 pieces/pizza), and an analysis by a dietician indicated that the average piece contained 358 calories and 13 grams of fat. Because of difficulty in precisely identifying the types of residual pizza remaining, averages were used to calculate caloric and fat intake for this analysis. Following their meal, participants were intercepted as they paid at the cash register, and each was given a short questionnaire which asked for demographic information along with a variety of questions as to how much they believed they ate, and their attitude toward the pizza. Other than questions involving numerical estimates, most questions asked their agreement with a number of statements on 9-point scales (1=strongly disagree; 9 = strongly agree).
It has been shown that the number of people eating in a group can significantly affect the amount of food eaten (DeCastro 2000). In each of our regression analyses, we include group as a linear variable. In accordance with DeCastro (2000), consumption is expected to be a nonlinear increasing function of group size. However, with groups ranging in size only from 1 to 7, there is not sufficient variation, particularly in larger groups, to allow precise estimation of more sophisticated relationships. This should be less of a problem in comparisons using minimum distance matching estimation. Table 1 presents summary statistics for each of the consumption and socio-demographic variables as well as the taste and quality evaluations.
[Insert Table 1]
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Table 3 displays the impact of the coupon on consumption estimated using standard Tobit estimation. The results remain the same when controls for socio-demographic variables are included, as well as when the date of participation is included. In each of these regressions, in the matching treatment effect estimation and in the uncontrolled summary statistics, paying half price reduces consumption by about one slice of pizza on average, or about one quarter of total consumption. Thus we see robust evidence that price paid has is positively correlated with consumption of pizza in an AYCE setting.
[Insert Table 3]
Both groups of consumers were reasonably accurate in estimating how much pizza they had eaten. The average difference between our exact measures and their recall was 0.05 and 0.08 slices of pizza for the half price and full price treatments respectively. Although it is generally thought that people have a tendency to mindlessly overeat in these buffet situations, this suggests that they are generally aware of how much they eat when the item can be discretely measured as it can with the number of pizza slices consumed. This raises the question of whether participants eating at a regular price buffet may have knowingly eaten additional pizza. This should be the subject of future research. Although the amount of wasted food was sizable with all consumers, plate waste doubled in the regular price buffet condition (from .22 to .43 pieces; F=2.09; p=0.15). This difference becomes significant when controlling for socio-demographic variables (effect of 0.326 pieces left, p=0.049, see Table 2). When paying half-price for a buffet, 19% left food on their plate, but this increased to 37% when they were paying full price. Many consider the crust of the pizza to be inferior. Hence, those paying more may have attempted to consume more of the parts of the pizza they enjoy most by reducing consumption of the crust. Informal observation of participants suggests that this is the case. 18
The smallest amount consumed was one slice of pizza, with 7 consuming exactly one piece.
19
[Insert Table 4]
Conducting similar analysis on the group not receiving the discount yields the same sign, though a slightly smaller result (see Table 5). Additionally, when both treatments are combined and a control is added for treatment, the taste of both the first and last slice of pizza are significant and negative.
[Insert Table 5]
While this, admittedly weak, negative relationship between taste and consumption seems perverse, perhaps it should not be unexpected. Intuitively, it takes a lot of bad pizza to get ones moneys worth relative to good pizza. Perhaps if pizza is of an inferior quality, transaction utility plays a more significant role in determining the optimal stopping point, producing a seemingly perverse result. Unfortunately, all taste measures were administered ex post and may display significant bias. An alternative explanation for this result is that individuals who ate more were simply uncomfortable and this feeling biased their assessment of taste. Additional research will be needed to clarify this potentially new paradox.
V. Discussion
The sunk cost fallacy is one of the more frequently noted violations of rational behavior. Here we present clear evidence that the fixed cost fallacy prevails in a transparent market setting that many people have experienced. We draw attention to two important findings. First, our results suggest that when paying more for a good, people will consume it at higher levels. The results of our data actually suggest a possible causal relationship between price and hedonic consumption utility and between hedonic consumption utility and consumption. Thus, those who pay more are less capable of enjoying the food and may eat more because of it. Insofar as hedonic satiation occurs prior to the point where consumption stops, a resulting decrease in ones evaluation of the food could simply represent the diminished marginal utility. 20
That is, instead of rating the peak level of quality, one may tend to overweigh the most recent consumption experience when evaluating the overall taste or quality of the food. This is the phenomenon described and documented by Kahneman, Wakker and Sarin (1997) in their exploration of the meaning of utility. We find support for this notion as the rating of the initial consumption appears to have much more to do with consumption decisions than the rating of the final consumption. Many individuals believed they had eaten too much upon leaving the restaurant (e.g., 48.6% of those paying full price vs. 41.9% of those paying half price, insignificant). Those who were charged more were more likely to eat more. The ex post evaluation by nearly half of participants that they had eaten too much suggests that individuals appear to use systematically different mechanisms to evaluate the optimal stopping point while they eat rather than after they have eaten. Oddly, while we find that those in the higher priced treatment ate substantially more pizza, they were not significantly more likely to admit to having overeaten. This may suggest that individuals consider transaction utility after having eaten as well as when deciding how much to eat and thus are just as likely to believe they have overeaten.
One of the key concerns for consumers in the short-term and in the long-term is to better monitor and control their consumption and intake of food. In the short-run, not doing so decreases how much they will enjoy their food and the dining experience. In the long run, it can lead to increased weight gain without the corresponding hedonic utility. Although buffets provide more flexibility and arguably more portion control, they can also produce over-consumption and regret. One reason people may regret eating at buffets is that the more they overeat, the less they like the food. The higher the price of a buffet, the greater the risk of over-consuming. We show that this can cause a nearly 30% increase in consumption. This may entail greater consumption if we dislike the foods we are eating. The $10.00 Sunday Breakfast Buffet is a greater danger to our waistlines than the $5.00 luncheon buffet.
proportion of the discount than by the final price (Kahneman, Knetsch and Thaler 1991), and such discounts may influence perceptions of quality. What works in favor of the results in this study is that the discounted pizza was still rated as being of higher quality than the undiscounted meals. Nevertheless, this effect might have been even stronger in a context where the price had instead been lowered instead of discounted. This study examined an ex-post evaluation of both the consumption stopping point and taste evaluation. Ex post observations of stopping points may not fully capture the process consumption decisions in a buffet context. Consumers ultimately make decisions after each helping whether to return to the buffet line. Further, we must acknowledge that taste ratings compiled ex post must be interpreted with care. Taste may also be negatively correlated with consumption due to ex post assessment bias. For example, those consuming more may experience some uncomfortability that affects their assessments. In this case it is unclear how that bias would affect assessments of the first, last and overall slices differently. It would be useful to add a time component to this evaluation process. For instance, the often mentioned notion that our evaluation of satiety lags (some say up to 20 minutes) behind our actual satiety, might suggest physiological cues might be compromising this evaluation over the course of a meal. Future studies could measure this orientation, and model it as a part of utility.
VI. Conclusion
The general purpose of this article is to demonstrate the sunk cost fallacy in an AYCE context. Our results suggest that in an AYCE setting, price positively influences consumption and negatively influences evaluations of taste. Additionally, consumption appears to be negatively related to taste within treatment. Each of these observations supports the notion that individuals are driven somewhat by transaction utility a desire to get a good deal in a fixed price setting. There are a number of ways in which utility can be conceptualized in these fixed price situations. 23
Several limitations apply to our results, as discussed in the previous section. We provide a methodological benchmark for future investigations in this area of fixed price research as it relates to a wide range of contexts, and introduce a seemingly new paradoxthat of eating more when one likes it less.
References
Abadie, A., D. Drukker, J. L. Herr, Guido W. Imbens (2001). Implementing Matching Estimators for Average Treatment Effects in Stata, The Stata Journal, 1:1; 1-18. Arkes, H.R. and C. Blumer. (1985). The Psychology of Sunk Cost. Organizational Behavior and
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Chandon, P. and B. Wansink (2002), "When Are Stockpiled Products Consumed Faster? A Convenience--Salience Framework of Postpurchase Consumption Incidence and Quantity,"
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Lambrecht A and B. Skiera (2006), Paying Too Much and Being Happy About It: Existence, Causes, and Consequences of Tariff-choice Biases. Journal of Marketing Research, 43:2, 212-223. Levitt, S.D and J.A. List. What do Laboratory Experiments Tell Us About the Real World? Working Paper Department of Economics. University of Chicago. Levitsky, D.A., C.A. Halbmaier and G. Mrdjenovic, (2004). The Freshman Weight Gain: A Model for the Study of the Epidemic of Obesity International Journal of Obesity 28, 1435 1442. Miravete, E.J. (2002) Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans, Review of Economic Studies 69, 943 71. Miravete, E.J. (2003) Choosing the Wrong Calling Plan? Ignorance, Learning and Risk Aversion.
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Obesity, forthcoming.
Wansink, B. and J. Sobal (2007), Mindless Eating: The 200 Daily Food Decisions We Overlook, Environment and Behavior, 39:1 (January), 106-23. Winer, R.S. (2005), Pricing. Cambridge, MA: Marketing Science Institute. Wolf, A.M. and G.A. Colditz (1998), Current Estimates of the Economic Cost of Obesity in the United States, Obesity Research, 6 (2), 97-106.
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Table 1. How All-You-Can-Eat Buffets Influence Consumption and Satisfaction1 (Standard Deviations in Parentheses)
Labels Half-Price Buffet (n=31) Actual Consumption - Actual number of pieces of pizza taken - Actual number pieces of pizza consumed - Average number of calories of pizza eaten - Plate waste (Actual taken less actual consumed) Regular Price Buffet (n=35) Significance F-test (1,64)
(p-value)
Perceived Consumption - How many pieces of pizza did you eat today? - How many calories of pizza do you think you ate? - How many pieces does the typical person eat?
Taste Perceptions - The pizza, in general, tasted really great - The first piece of pizza I ate tasted really great - The last piece of pizza I ate tasted really great - The pizza is high quality Other Potential Utility Measures - I am very satisfied with the quality of pizza I ate - I am very satisfied with the quantity of pizza I ate - I ate more pizza than I should have - I ate enough pizza to get my moneys worth Socio-Demographics - Age - Gender (percent male) - Height (meters) - Number in group
1
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Table 2. The Effect of Paying Half Price Controlling for Socio-Demographic Variablesa
Outcome Variable Number of Slices Eaten Overall Taste Rating Taste Rating of First Slice Taste Rating of Last Slice Plate Waste * P<0.10, **P<0.05
a. Results are derived using a minimum distance matching estimator (Abadie et al. 2001). Matching is based on age, gender, height and number of members in the party.
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Table 3. The Effect of Paying Half Price on Pizza Consumptiona Variables Model 1 Model 2 Model 3
-1.209*** (0.489) --
-1.039** (0.482) 0.702 (0.682) -0.032 (0.021) 2.974 (2.180) 0.021 (0.154)
-1.006** (0.490)
0.713 (0.682) -0.032 Age -(0.021) 3.054 Height -(2.189) 0.026 Group -(0.154) 0.056 Day 2 --(0.609) -0.178 Day 3 --(0.571) 2.808*** -1.947 -2.061 Constant (0.358) (3.562) (3.630) 0.022 0.049 0.049 Pseudo-R2 a. Consumption is measured continuously in slices consumed, calculated by comparing total number of pizza slices taken minus the total plate waste divided by the average weight of a slice of pizza. Estimates result from Tobit estimation with a lower limit of 1 piece of pizza consumed.
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Table 4. The Effect of Taste on Pizza Consumption for those Receiving a 50% Discounta (Standard Errors in Parentheses)
Variables Overall Taste Rating Taste Rating of First Slice Taste Rating of Last Slice Gender Age Height Group Constant
Model 2 --
Model 3 --
Model 4 --
Model 6 --
Model 7 --
--
-0.457** (0.208)
--
--
--
-0.486** (0.212)
--
--
--
-0.289 (0.203) 0.984 (0.815) -0.030 (0.028) 2.684 (2.377) -0.000 (0.235) 0.307 (4.085)
--
--
--
-0.257 (0.203)
0.830 (0.897) -0.030 (0.029) 3.071 (2.465) -0.069 (0.236) -0.804 (4.178)
0.897 (0.767) -0.023 (0.027) 2.278 (2.264) 0.012 (0.22) 2.109 (4.006)
0.883 (0.830) -0.030 (0.029) 3.111 (2.418) -0.092 (0.231) 1.945 (3.883)
---
---
---
-4.101*** (1.452)
-6.275** (1.531)
Pseudo0.047 0.081 0.060 0.029 0.007 0.041 R2 a. Consumption is measured continuously in slices consumed, calculated by
comparing total number of pizza slices taken minus the total plate waste divided by the average weight of a slice of pizza. Estimates result from Tobit estimation with a lower limit of 1 piece of pizza consumed.
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Table 5. The Effect of Taste on Pizza Consumption for those Receiving No Discount and All Treatmentsa (Standard Errors in Parentheses)
Variables Overall Taste Rating Taste Rating of First Slice Taste Rating of Last Slice Half Price Gender Age Height Group Constant
--
-0.426* (0.242)
--
--
-0.337** (0.147)
--
--
--
-0.136 (0.222)
--
--
-0.265* (0.150) 0.898 (0.478) 0.667 (0.665) -0.030 (0.020) 2.455 (2.150) 0.001 (0.150) 0.880 (3.822)
-0.330 (1.117) -0.034 (0.031) 1.970 (4.332) 0.008 (0.220) 3.195 (4.178)
-0.510 (1.085) -0.021 (0.032) 0.660 (4.270) -0.005 (0.211) 5.868 (7.660)
-0.413 (1.134) -0.041 (0.031) 1.279 (4.423) 0.055 (0.221) 3.403 (8.063)
0.901 (0.488) 0.602 (0.702) -0.031 (0.021) 2.909 (2.170) -0.000 (0.153) -0.103 (3.722)
0.949 (0.466) 0.792 (0.658) -0.025 (0.020) 2.190 (2.127) 0.028 (0.148) 1.347 (3.709)
Pseudo0.035 0.045 0.027 0.056 0.068 0.060 R2 a. Consumption is measured continuously in slices consumed, calculated by comparing total number of pizza slices taken minus the total plate waste divided by the average weight of a slice of pizza. Estimates result from Tobit estimation with a lower limit of 1 piece of pizza consumed.
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Perceived Taste of First Slice* Perceived Taste of Last Slice* *1=low; 9=high
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