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13 - Beer and Free Lunches

This final chapter explores how the process of ordering in restaurants reveals our predictable irrationality, and then explains what behavioral economics is and where the "free lunches" are—the opportunities to improve our decisions. **Carolina Brewery experiment**: Jonathan Levav and Ariely conducted experiments at a Chapel Hill bar. Key questions: (1) Does the sequential process of taking orders influence choices? (2) Does it foster conformity or non-conformity? (3) Does being influenced by others make people better or worse in terms of enjoyment? **Setup**: They offered free samples of four beers: Copperline Amber Ale, Franklin Street Lager, India Pale Ale, and Summer Wheat Ale. Two procedures: 1. **Order aloud publicly**: Each person declared their order in sequence 2. **Order privately in writing**: Each person wrote their choice without hearing others **Experiment results**: **Main finding**: When ordering sequentially (publicly), people order more types of beer per table—opting for variety. Summer Wheat Ale wasn't very attractive, but when other beers were "taken", participants chose something different—**perhaps to show they had their own mind and weren't copying**—ending up with beer they didn't want. **Beer enjoyment**: Those who made choices aloud weren't as happy with their selections as those who chose privately. *Important exception**: **The first person to order in the sequential group was the happiest in their group and as happy as those who chose privately.* They weren't encumbered by others' choices. *Duke follow-up study with wine**: They measured personality traits. Found correlation between tendency to order different drinks and a trait called **"need for uniqueness"**. **Individuals more concerned with portraying uniqueness were more likely to select a drink not yet ordered at their table.* The results show that people sometimes sacrifice pleasure from a consumption experience to project a certain image to others. Two goals when ordering: *order what they'll enjoy most and portray themselves in positive light.* The problem: they can get stuck with a dish they don't like—a situation they regret. In essence, particularly those with high need for uniqueness, *sacrifice personal utility to gain reputational utility.* **Hong Kong study (cultural differences)**: In cultures where uniqueness is not a positive trait, people would try to express conformity. In Hong Kong, **individuals selected food they didn't like as much when selecting publicly, but were more likely to select the same item as people ordering before**—again making a regrettable mistake, though a different type of error. **Practical advice—"free lunch"**: 1. Plan your order before the waiter approaches, and stick to it 2. Announce your order to the table before the waiter comes to claim your choice 3. *But the best option is to order first* Perhaps restaurants should ask clients to write orders privately so no customer is influenced by peers. It's the cheapest and simplest way to increase enjoyment. **Standard economics vs Behavioral economics**: *Standard economics* assumes we're rational—we know all pertinent information, calculate value of options, make logical decisions. But this book shows: *we're much less rational. Our irrational behaviors are not random—they're systematic and predictable. We make the same mistakes repeatedly because of the basic wiring of our brains.* *Behavioral economics* is based on how people actually behave, not on how they should behave. Emerging field focused on *people not always behaving rationally and making systematic errors in decisions.* *"Free lunches"**: Standard economics says all decisions are rational and optimized—**there are no free lunches, if there were, they would have already been found.* Behavioral economics believes we're susceptible to irrelevant influences, emotions, myopia, and other irrationalities. *The good news: these errors provide opportunities for improvement. If we all make systematic mistakes, we can develop tools, methods, and policies to help us make better decisions.* *Final lesson**: Understanding our predictable irrationalities allows us to design better choices, environments, and decision mechanisms. From personal health to finance to public policy. **These are the true "free lunches"—the opportunities for improvement that come from understanding the systematic nature of our shortcomings.*