Tyler Cowen on Pay as You Wish Restaurants

Tyler Cowen, well-known for both his blog and his foodie tendencies, recently told Salon.com that extending pay-as-you-wish pricing to restaurants is a bad idea. “Part of the problem is if you’re a customer and what you pay is voluntary, you’re under pressure to pay a lot of money,” says Cowen. “You do it once to prove to yourself and others how charitable you are, but how many people go back 17 times?”[%comments]

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  1. Marcel St. Pierre says:

    Tyler Cowen’s point didn’t make any sense to me.

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  2. Brett says:

    I would offer a different argument. More like “how many times are you going to try to prove your charitability?” Which to me means that over time the payments will become more perfectly in line with what people think the meal was actually worth.

    Now, how to do away with the freeloaders.

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  3. Brian S says:

    It’s notoriously difficult to predict how people are going to behave with a given behavioral model. I’m sure, before its implementation, pay-as-you-wish in general would have been dubbed a sure catastrophic failure.

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  4. Dr. Reed Shiraki says:

    I have been utilizing a “pay-as-you-wish” system in my chiropractic practice since 2001. It is a system I call the Honor Box. I agree with Mr. Cowan that “pay-as-you-wish” would not work in restaurants. However, I think his reasoning behind his assertion is a a little off. He seems preoccupied with the psychology of the system and the “pressure to pay more” and the “need to feel like you’re being watched.” These are not strong indicators as to the potential of success or lack of success for this payment system.

    The main reason and the reason which should have been emphasized more clearly by Mr. Cowan , is the inherent overhead costs. Radiohead can deliver an album over the internet and I can deliver a chiropractic adjustment practically for free. Not so with a restaurant meal. Factor in ingredients, staffing, etc. and it’s very easy to lose money with every transaction. Simple as that. If restaurants could tweak this system to ensure each transaction captures at least the overhead costs so there is no potential of losing money with a sale, then with effective marketing, the PAYW model could work.

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  5. Jim says:

    The preoccupation with freeloaders is a big reason Cowen’s logic seems fair. The need to charitably compensate for freeloaders for the large majority more than compensates for a minority. People are willing to pay for feeling good. On the other hand, how likely are you to come back.

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  6. Drill-Baby-Drill Drill Team says:

    Pay as you wish means also paying nothing for a free meal. NO persecution for bad behavior of being a chintzy cheapskate. . Human nature tries to get by relying on the genorosity of others. People behave badly and want to regress to a dependent infantile state without the responsibility of having to pull their full share of weight.

    So volunteer contributions mean a free meal.
    Tell me were there ever any 5-Star Communist Resturants?

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  7. Eric M. Jones says:

    Most people don’t realize that 4000 years ago there were restaurants. You could sit down at a table, there was a plate and a knife and spoon (forks were invented in the 1600′s), a menu (maybe on the wall), a special of the day, waitresses or waiters, you would get a free glass or cup of water and maybe bread and olive oil with herbs. They served wine, beer (in bottles!) and various beverages.

    Not so different from today. But pay as you wish didn’t work from that time to today…and then they would bounce a rock off your skull if you skimped on the tip….or tried to leave without paying.

    So forget it.

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  8. trader n says:

    People will go back 17 times if it’s really really good.

    PWYC models work if the producer is very good. I use a lot of free software and other resources, but when I find one that is very good I will reward the producer with a cash donation simply as an incentive to keep producing and as a thank you.

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