The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life Read Online Free PDF Page B

many places in the United States, such behavior is considered rude. When a group of people jointly enjoys a meal at a restaurant, there is often an unspoken agreement to divide the bill equally. So how does splitting the bill really affect behavior?
    We conducted a study to see what would happen when different groups of diners—students who didn’t know each other—were faced with different ways of paying the bill. 5 We divided our participants into three types of groups and changed the way they paid for the bill. In one case, six diners (three men and three women) paid individually; in the second, they split the bill evenly. In the last case, we paid for the whole meal. How did the payment scheme affect what each person ordered?
    Now, imagine you are one of six students going to lunch in our experiment, and you are told that you are going to split the tab with the other five. You’re pretty hungry, so you order a lobster roll ($20), a side of fries ($3.50), and a beer ($5). The person sitting next to you isn’t very hungry, so she just orders a salad ($8) and an iced tea ($2.50). After you all eat your lunch, you and a few others at the table decide to top it off with a piece of pie ($4) and a cappuccino ($5.50), whereas others abstain.
    Then the waiter comes along and delivers the bill: the total comes to $125, including tax, and tip, which means each of you pays $25. This is no problem for you because, if you had paid individually,your share would have come close to $40. But it is a problem for the woman who only ordered $10.50 worth of food.
    It turns out that the way you split the bill actually affects what you order. We found that people ate the most when we footed the bill for the whole meal. No surprise there. But when it came to the bill-splitting group, people tended to order more expensive items than they did when each person paid for his or her own meal. You have to wonder about the people who “ordered up.” They weren’t “bad” people who took advantage of others; they just reacted to the incentives they were facing. After all, for every extra dollar they ordered, they had to pay only one-sixth of the cost. So why not order the $20 lobster roll, if all you have to pay for is less than $4 extra? Of course, there are no free lunches (apart from those in our experiments). Someone has to pay for the other $16 for the lobster roll.
    This is an example of a “negative externality”—that is, someone else’s behavior that affects your well-being. Let’s say you’re a non-smoker, and a smoker sitting near you decides to light up. He enjoys his cigarette, but you are also “consuming” his smoke. The guy smoking has bestowed a negative externality on you. Simply put, the party consuming the good is not paying all of its cost. In a bill-splitting situation, the person enjoying the large, expensive lunch while others consume less is doing the same thing. People simply react to the incentives they are facing.
    What Works?
    Throughout this book, we look at significant issues such as discrimination, gender and education gaps, charitable fundraising, and business profitability. The lesson that recurs is this: incentives shape outcomes. But it’s crucial to set them up right and to finely tune them to match the underlying motivations of people.
    Consider, for example, what it might take to get people to lose weight. The last decade has seen a dramatic rise in obesity in the United States. And obesity is a major risk factor for heart disease, diabetes, and other health problems. Can incentives help people get control of their weight?
    After yet another holiday season of too much food and drink—all those Christmas cookies, fried Hanukah latkes topped with sour cream, that New Year’s Eve champagne-and-caviar extravaganza—you look in the mirror, stand on the scale, and see that you’ve reached what might be generously referred to as “critical mass.” You have to cinch your belt more loosely. You feel