Imagine an evening with friends at an upscale restaurant. The menu arrives and you have to choose between a pricey lobster with several glasses of Champagne or an inexpensive pasta dish and the house wine. You know that the check will be divided equally.
Where are we going? To the unscrupulous diner’s dilemma.
The Diner’s Dilemma
Behavioral economists have looked at how diners resolve the ordering dilemma when they are with a group. They know that splitting the check will diminish the cost for the person who orders the most expensive menu items. As a result, they expect that when we each pay for ourselves, we will order more prudently than when we share the cost with others.
In one experiment, researchers created ten groups, each composed of three men and three women who did not know each other. During different time slots at a popular restaurant, each group of six ate together. Four groups were told the individual would pay for his or her own check. A different four groups in a second set of time slots were expected to divide the check equally. And a third cohort of two groups believed that someone else would pay for everything. (There was a fourth control group but we need not be concerned with it.)
You can see in the graph that the results were predictable. We do indeed spend less when someone else pays:
But it might not be that simple. With friends altruism can play a role. Also, women sometimes display more concern for the group than men. Furthermore, when they tried to test the same hypotheses in the lab, there was more cooperation.
Our Bottom Line: Tragedy of the Commons
Still though, when looking at the restaurant groups, an economist would say that we will increase our consumption as long as our marginal benefit–the extra benefit we get–exceeds our marginal cost–the extra it will cost us when we pay for that meal. Explained with marginal reasoning, of course we order more when the check is equally shared.
The problem is the impact on the group. Again using marginal analysis, the behavioral economist shows that the marginal or extra utility the diner gets from the meal is less than the marginal social cost to the group. Consequently, the diner has the incentive to order more but the group suffers from an outcome that would have been more efficient if everyone paid individually.
And that takes us straight to the environment. Called the tragedy of the commons, shared resources are overused because individuals experience less of the cost for their behavior. As with the shared check, the entire group disproportionately suffers.
So, do you order the lobster and the Champagne or pasta and the house wine?