Yesterday, we were driving home from the Academy of Management conference and decided to stop for a quick bite to eat at Fazoli's. For those of who don't recognize the name, it's a fast-food restaurant offering Italian food. One feature the company has been well-known for is its free breadsticks, with a server wandering around the restaurant offering more breadsticks throughout your meal.
Well, apparently, the company is trying to rein in the breadstick bonanza. The location where we stopped now charges an extra twenty-five cents for "endless breadsticks" throughout your meal. This decision sounds like it was made by someone well trained in standard economic principles - with rising costs, this move will help them recoup some costs while avoiding an across-the-board price increase. Only those who value the extra breadsticks will have to pay. Perfect solution, right?
Well, based on the reaction of the geriatric gourmand in line in front of me, maybe not. This gluttonous granny was outraged that she had to cough up a quarter each for her and hubby to have their free bounty of breadsticks.
Not a surprising reaction to those familiar with prospect theory, an alternative to the standard expected utility theory found in most economics textbooks. How something is "framed" matters a great deal in how people react. Granny now has to lose twenty-five cents to get the right to gorge on as many breadsticks as her dentures can plow through. Prospect theory tells us that people "feel" losses more than they feel gains. So this loss frame will have a powerfule negative effect. Fazoli's may have been better off just raising all of their meal prices by a quarter and then offering a twenty-five cent discount for those who forgo the rights to the extra breadsticks.
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