Not So Dismal After All

John List and Uri Gneezy have appeared on our blog many times. This guest post is the last in a series adapted from their new book The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life. List appeared in our recent podcast "How to Raise Money Without Killing a Kitten."

Pay-what-you-want is a bit of an oxymoron for economists. After all, if you had the choice of how much to pay, wouldn’t you always pick $0? But as we’ve found time and again, people are a lot more complicated than typical economists have assumed.

Case-in-point: in 2007 Radiohead made their album In Rainbows downloadable online for whatever price customers wanted to pay. Precise statistics are hard to come by, but one thing is clear: a lot of people paid a good amount of cash for the album. In fact, it was so successful that other acts have followed suit. Heck, even corporations like Panera have gotten into the act, setting up cafes in St. Louis and Chicago where customers pay what they can for certain menu items. 

What got us curious, though, was trying to answer why people were paying more than $0. In particular we wanted to know what sorts of levers could we pull that would induce people to pay more or pay less in an economic environment like Radiohead’s website? Luckily, right around this time we started working with Disney Research, and they were just as interested in these questions.

Pay After You Go?

We've blogged extensively about pay-as-you wish pricing schemes. Springwise reports that a Spanish concert promoter is now experimenting with post-concert pay-as-you-wish pricing:

Spanish promoters Caravana de Emerxencia have recognized this problem and addressed it through their upcoming gig, where attendees can decide the price of the ticket when they leave.

The concert is taking place on April 4 at Sala Capitol in Santiago, northern Spain. Four bands will be playing on the night – SkarallaosChotokoeuSkarnivals and Swingdigentes. At the end of the evening attendees can pay whatever price they think the event deserves.

How do you like this plan? How do you think you would respond?

Making a Living Through Pay-as-You-Wish

A TED talk by musician Amanda Palmer explores the concept of pay-as-you-wish funding for artists and performers:  

Right at this same time, I'm signing and hugging after a gig, and a guy comes up to me and hands me a $10 bill, and he says, "I'm sorry, I burned your CD from a friend." "But I read your blog, I know you hate your label. I just want you to have this money."

And this starts happening all the time. I become the hat after my own gigs, but I have to physically stand there and take the help from people, and unlike the guy in the opening band, I've actually had a lot of practice standing there. Thank you.

And this is the moment I decide I'm just going to give away my music for free online whenever possible, so it's like Metallica over here, Napster, bad; Amanda Palmer over here, and I'm going to encourage torrenting, downloading, sharing, but I'm going to ask for help, because I saw it work on the street. So I fought my way off my label and for my next project with my new band, the Grand Theft Orchestra, I turned to crowdfunding, and I fell into those thousands of connections that I'd made, and I asked my crowd to catch me. And the goal was 100,000 dollars. My fans backed me at nearly 1.2 million, which was the biggest music crowdfunding project to date.

And here's a rundown on other performers who've explored the pay-as-you-wish strategy.  

A Pay-What-You-Want Experiment for the Freakonomics Movie

The producers and distributors of the Freakonomics film have set up a nice little experiment: a one-night sneak-preview screening (tonight) in several U.S. cities with a pay-what-you-want pricing scheme.

How to Maximize Pay-What-You-Wish Pricing

Combine with a charity appeal.

You Too Can Fund a TV Show

Donor-backed TV.

Tyler Cowen on Pay as You Wish Restaurants

Cowen thinks they're a bad idea.

Pay What You Want at Panera

Panera tries a new nonprofit model.

Pay-as-You-Wish Gaming

Buyers can also direct some or all of their payment to charity.

Pay-What-You-Wish Goes to the Theater

Pay what you wish to see Death of a Salesman in Dallas.