At a coffee shop in Bluffton, South Carolina, people have been spontaneously paying forfuture customers’ drinks on a fairly consistent basis. Sometimes, those who are not even looking to buy coffee for themselves will come in and donate money for future (anonymous) customers.

While certainly unique, this may not be too surprising when viewed under the lens of behavioral economics — and could suggest an interesting business model. Let’s consider a hypothetical coffee shop that chooses to employ a strictly “pay-what-you-want-for-other-customers” pricing strategy, in which customers can only leave money to be used by other customers, and are allowed to leave as much (or as little) as they would like. In turn, their drinks are paid for by previous donations.

First, there are a number of examples in the scientific literature (and in the real-world) of the benefits of pay-what-you-want pricing systems. Allowing people to pay the price they want can sometimes result in people paying more money than they would if a standard price was requested for any particular product or service.

Second, recent research by Elizabeth Dunn, Lara Aknin, and Mike Norton shows that spending money on others can have a more positive impact on one’s happiness than spending money on oneself. So this may mean return visits by customers who wish to get that extra boost in happiness that they do not get from places where they buy their own selected product(s).

Third, Dan Ariely has studied how powerful the idea of “free” can be; in short, people love free things. Receiving a “free” drink in our hypothetical coffee shop (paid for by another customer) should be more desirable than directly paying for the drink.

At this hypothetical coffee shop with a “pay-what-you-want-for-other-customers” pricing strategy, customers may have an experience in which they get to enjoy a “free” product (good for that customer), get a boost of happiness from buying something for others (good for that customer…and the customer(s) who get to spend that money), and may wind up spending more money overall than they would have under a traditional pricing scheme (good for the coffee shop). Thus, allowing people to pay what they want for other customers may potentially lead to a lot of good all around.

There are certainly many risks that come along with a “pay-what-you-want-for-other-customers” pricing system. But if the events of the coffee shop in South Carolina are any indication, such a pricing strategy may just be irrational enough to work.

~Jared Wolfe~

The image (and jingle) of the bells of Salvation Army volunteers is almost as synonymous with the holiday season as Santa Claus himself. However, the New York Times reported last month that a change may be coming to a street corner near you; the charity has begun testing the use of a digital donation system called Square that would allow passersby to donate via credit card, rather than have to worry about scrambling for loose change.

The article mentions two potential benefits of this kind of system. First, people are less likely to carry cash on them as they were in the past, and so Square’s credit card system provides people with a quick, simple, and convenient way to donate when they don’t have any real money handy (and with 1 in 7 Americans carrying at least 10 credit cards, this shouldn’t be a problem). Second, a credit card system would be safer because donations would not be vulnerable to theft like money in the kettle has always been.

Still, this credit card system may unintentionally have another significant benefit: it may lead people to want to donate more money than they would otherwise. There is a concept in behavioral economics known as the “pain of paying.” Simply put, it hurts us to spend (and part with) our money. And since buying things with a credit card is a less direct, less tangible way to part with money than using cash, it can feel less painful, and therefore lead people to spend more.

Assuming that this effect generalizes from buying products to donating to charities, Square’s credit card system may actually lead to larger total donations for the Salvation Army, whether it is because more people decide to donate, or because more money is donated by each individual. (Not to mention the possibility that people may feel silly choosing “loose change”-style amounts (e.g., 35 cents) to donate via credit card, and so may round up to the whole dollar for that reason alone).

So Square’s credit card system may, through behavioral economics, lead people to be more generous with their donations to the Salvation Army. If the Salvation Army uses this new system and winds up faring well, perhaps other charities should take note and consider implementing such a system as well.

Have a happy holiday season, everyone! And remember that doing the most good may be just a swipe away.

~Jared Wolfe~

Throughout my life, I have loved eating meat, but my two best friends at Duke are vegetarians, and because of them I was persuaded to read Eating Animals by one of my favorite contemporary authors, Jonathan Safran Foer. While Foer mainly writes novels, his newest book is non-fiction, and discusses many topics that revolve around, well…eating animals.

One of the main takeaways from the book is that the vast majority (about 99%) of the meat we eat in America comes from factory farms, where animals face a shocking level of unnecessary suffering, a kind of suffering that is generally unseen at local, organic farms. After reading the book, I still eat meat, but only if it comes from humanely-raised sources.

While reading Eating Animals, I couldn’t help but think of behavioral economics (a topic which, admittedly, is often on my mind anyway), and how so many behavioral economic principles seem to apply to various patterns of people’s general thoughts, emotions, and actions regarding meat. While I do not have the empirical data to support my musings, I figured I would share them as “food for thought.”

Identifiable Victim Effect: The massive scale on which factory farms operate is precisely what makes it so difficult to sympathize with the animals within them.

• Animal Abuse: Many people would be horrified if they saw a dog being hit by its owner, yet are relatively unconcerned (or just don’t think about) that the piece of meat they are eating undoubtedly lived a life of incomparably greater pain.
• Hunting: Many find hunting immoral, yet animals that are hunted would generally have lived a much better life up until death than animals in factory farms (e.g., the Sarah Palin hunting controversy and Aaron Sorkin’s infamous letter criticizing her, even though he is not a vegetarian, and so presumably eats factory-farmed meat..

One Step Removed (see the “Coke vs. dollar” study): Many would find it immoral to treat a cow, pig, or chicken the way that the ones we eventually eat are, but aren’t fazed with it being done for us indirectly by others (or just don’t think about it either way).

Social Norms and “Us” vs. “Them” (see the CMU vs. UPitt cheating study): Many non-vegetarians see others eating meat indiscriminately and so think doing so is OK, and may not stop and think much about a vegetarian’s reasons for not eating meat (which may be reasons non-vegetarians would actually agree with, too) because vegetarians may automatically be categorized as a fringe group.

“Hot” vs. “Cold” States (see the “laptop” study): Our food decisions (and therefore, our thinking about food) often occur when we are already in the “hot” state of hunger. When we are not hungry at all (in a “cold” state), we are probably more receptive to the logical arguments against eating factory-farmed meat, and might agree to do so. But the hungrier we get, the more likely we are to do something we might think of as unethical. This is the same reason that people find it so easy to find the resolve to quit smoking just after a cigarette, but nearly impossible when cravings set back in.

Paradox of Choice: Limiting our food options (by cutting out factory-farmed food options) should help us better appreciate the options that remain for us.

Dating: I was told that many vegetarians will only date fellow vegetarians, and the majority of vegetarians are female (60-67%)…so the demand for potential vegetarian males is much greater than the supply. Thus, for males, it would be irrational not to be a vegetarian to allow yourself access to this wonderful market of potential dates.

~Jared Wolfe~