Chapter 9 beer and free lunch

what is behavioral economics, Where is the free lunch? If particles can think, do physicists still exist? Are you influenced by other people when ordering drinks at a bar? At a restaurant, do you order your favorite dishes or other people's favorite dishes? Do you place more emphasis on satisfying your own desires or establishing an image in the minds of others? Is there a free lunch in this world? Are employees willing to sacrifice immediate consumption to save for tomorrow? Free Beer at Carolina Brewery Franklin Avenue is the main street outside the campus of the University of North Carolina at Chapel Hill.The Carolina Brewery is a popular bar on this street.The street is beautiful, with brick buildings on both sides, shaded by old trees, restaurants, bars and cafes everywhere - it's hard to imagine that the catering industry is so prosperous in such a small town.

As soon as you enter the gate of the Carolina Beer House, you will find that it is an old house with no suspended ceiling and exposed beams. There are several large stainless steel beer barrels in the house, which are enough for guests to enjoy.There were tables scattered throughout the hall, with half-closed partitions between them.A favorite patron of the place are university students, as well as older regulars, who gather here to sample a wide range of premium beers and good food. Not long after I started working at MIT, Columbia University professor Jonathan Levaff and I were thinking about some of the problems people might have in a light-hearted bar.First, does the order in which wine is ordered affect which wine other people at the same table end up ordering?In other words, is what wine a customer orders influenced by what others order?Secondly, if it is affected, is the tendency of this influence the same choice or individual choice?That is to say, do the customers at the same table intend to order the same beer or a different beer?Finally, we also wanted to find out how people who order drinks under the influence of others feel better or worse in terms of taste enjoyment of beer.

In this book, from beginning to end, I have described some experiments in detail, I hope you will find them novel and inspired.If you feel that way, it's because these experiments disprove the assumption that we are inherently rational.I give example after example after example how far we are from Shakespeare's "what a marvelous piece of work man is."In fact, our reason is not noble, our talents are not vast, and our minds are rather dull. (To be honest, I think Shakespeare understood perfectly well that there was some irony in Hamlet's words.) In this last chapter, I will talk about another experiment, give an example of our predictable irrationality, and then further illustrate the general economics view of human behavior, compare it with the view of behavioral economics, and finally draw some in conclusion.Let's start with an experiment.

experiment We thought about so many questions in the Carolina Brewery, enough to fill a vat of beer.Jonathan and I decided to jump in and find out -- figuratively, of course, in order to get to the bottom of the plethora of questions that go with the booze.We first went to the manager of the brewery and asked him to allow us to give customers free samples of beer, which we paid for ourselves. (You can imagine how difficult it was to convince the finance department that the $1,400 we spent was a legitimate experiment fee when we went to MIT for reimbursement.) Of course, the manager happily agreed.After all, he could sell us beer again, and his customers could drink free samples, so customers would naturally be more willing to come to the brewery.

He sent us his work aprons, but he gave us only one rule: from the moment a customer sits down, we have to walk up and ask them to order a sample of beer within a minute.Failing that, we had to signal the official waiters to come and greet the guests.This policy is reasonable, the manager doesn't know if we are competent as waiters, he doesn't want to keep the guests waiting too long.That's how we went to work. As soon as the four guests were seated, I stepped forward.They appear to be college students who get together to throw a party of four.The two boys wore probably the best trousers around, and the girls went to such lengths with make-up that they put Elizabeth Taylor to shame.I said hi, asked them to choose a sample beer, and made a presentation:

Kubler Amber Ale: Red medium ale with a proper ratio of hops and malt, with a fruity aroma of traditional ale. Franklin Street Lager: Bohemian golden lager with soft malt aroma and refreshing hop flavor. Pale Indian Ale: Rich in hops, it still retains its full flavor on the long voyage from England to India via Africa.After fermentation, hops are added in multiple stages, which has the aroma of flowers. Summer wheat malt beer: Bavarian-style malt beer, brewed with 50% wheat, low alcohol content, rich in bubbles, fermented with authentic German yeast, light hop flavor, unique strong aftertaste of banana and clove, suitable for drinking in summer.

Which do you choose? After a few beers were introduced, I asked one of the gentlemen - the blond one - to order first.He ordered a pale Indian ale.Next up was the girl with the more exaggerated haircut, and she ordered the Franklin Avenue Cellar.Then I asked another girl and she ordered the Cooper Lay Amber Ale.Her boyfriend was last, and chose a summer wheat malt.With their drink list in hand, I hurried to the bar where Bob, a tall, handsome bartender—a senior computer major—was standing there smiling at me.He saw that I was in a hurry, so he gave me a drink first.Then I took the tray with the four 2-ounce samples each to the table of the party of four and placed them in front of each of them.

Along with the wine samples, I sent them four questionnaires printed on brewhouse letterhead.We asked respondents if they liked the beer they chose and how much they liked it, and if they regretted the brand they chose.I retrieved the questionnaire and continued to observe the four from a distance to see if any of them took a sip from someone else's cup.It turned out they didn't taste anyone else's. Jonathan and I experimented with another 49 tables in the same way.Then continue to do it, but we changed the experimental method for the next 50 tables.This time, we first read the introduction of the four beers, and then gave each of them a wine list with the names of the four sample wines printed on it, and asked them to indicate which one they wanted instead of saying it.In this way we turn ordering wine from a public act into a private act.That is to say, each participant in the experiment could not hear what other people—including the person he might be trying to impress—ordered, and therefore could not be influenced by others.

what's the result?What we found was that people ordered wines in different orders publicly versus privately.When they order in order, each table orders a variety of different brands of wine, in essence, tends to diversify.There is a basic manifestation of understanding this point. Summer wheat malt beer usually does not sell very well, but when other brands have been chosen by others, the experimental participant feels that he must choose a different one from others—maybe In order to show that he has his own opinion and is not willing to follow others - so he has to choose what others have not ordered, but in the end he ordered what he didn't want to order, so as to show that he has personality.

How much do they enjoy beer?It is easy to reason that if people choose a beer that others have not chosen, just to show that they are different, they are likely to end up serving wine that they did not want to drink or like.That's exactly what happened.Generally speaking, people who order wine in public, just like we order food in a restaurant, enjoy the wine itself less than those who order wine in private without considering other people's opinions.But there was one important exception: the first person in a group to order a drink publicly was, in fact, the same as the one who ordered a drink privately, because he or she was not influenced by the choices of others.Thus, we found that the first person in the order to order publicly enjoyed the drink the most among their tablemates, as well as those who ordered privately.

When I was experimenting at the Carolina Brewery, I came across an interesting incident: I went to a table in my waitress overalls and started reading a beer introduction to a man and a woman who had just been seated.All of a sudden I recognized the guy, his name was Rick, he was a graduate student in computer science and I had worked with him on a project about computer vision about three or four years ago.Because we required to treat each table of guests the same in the experiment in the beer house, it was really inconvenient for me to stop the work at hand and talk about the old days with him, so I had to introduce the beer according to the operating standards of the waiter as if nothing had happened.After the introduction, Rick stopped me and asked me how I was doing. "Very well, thanks," I replied, "Which beer would you like to order?" They both finished sampling beers, and then Rick asked abruptly, "Dan, did you get your PhD?" "Got it," I said, "I've had it for over a year. Hold on a second, I'll serve you beers right away." As I walked to the bar to get my drink, I thought, Rick must think I'm really The waiter, with my Ph.D. in Social Sciences, came to serve beer.By the time I've brought their beers to the table, Rick and his female companion—his wife, really—have filled out a short questionnaire.At this time, Rick wanted to find a topic again. He said that he had recently seen a paper of mine, and he liked it very much, and it was quite well written.I thought the paper was good myself, but he just said that to make me, the beer waiter, feel better. Then at Duke University, we did another experiment with wine samples, and the participants were some MBA students. In the experiment, we were able to observe some personality traits of the participants--the manager of the Carolina Brewery was not very impressed. interest.This opened the door for us to find an interesting phenomenon - we found that people's tendency to choose alcoholic drinks differently from others at the same table, and the relationship between the two personality traits called "unique needs" connection between.Essentially, people who focus on expressing their own uniqueness are more likely to order wine that no one else has ordered before, as a way to prove that they are indeed different. These experimental results show that people are sometimes willing to sacrifice the pleasure of consumption to highlight their image in the minds of others.People seem to have two goals when they choose food and drink: either to maximize their own enjoyment, or to show off some positive personality traits to their friends.The problem is that once they make a choice, for example, order a dish, they have to settle for something they don't like, in a state of regret.After all, people, especially those with high unique needs, may sacrifice personal needs for the need for fame. The above results are clear and unambiguous, but we suspect that, in a cultural context where unconventionalism is not considered a positive personality trait, it is possible for people to express a sense of belonging to the group when ordering food and wine in public, and to deliberately portray people who are consistent with others' choices. impression.Our experiments in Hong Kong proved that this is indeed the case.In Hong Kong, people often don't like to order food and wine in public, but like to order in private.But when these participants ordered wine and food, they all followed the example of the first person in the group-so they also made mistakes that they regretted. A Behavioral Economics Explanation of the "Free Lunch" Let me stop here about the experiment, as you can see, the experiment leads to a simple trick in life - a free lunch, so to speak.First of all, you are going to eat in a restaurant, it is best to make up your mind before the waiter arrives and stick to it.Watching what other people order and then ordering, it is easy to guide you to order things that you didn't want to order.If you are afraid of being influenced by others, an effective way is to write your choice and put it on the table before the waiter comes.In this way, you have defined the scope of your own order, and what other people order, even the person who ordered in front of you, is unlikely to change your established choice.Of course, the best way is to fight for the first point. Perhaps restaurants should allow customers to write down their order in private, so they won't be influenced by their companions.We often spend a lot of money on the pleasure of dining out, so ordering wine and food in writing is probably the most economical and easiest way for us to increase the pleasure of dining out. But I learned an even more important lesson from the above experiment—indeed, from all the experiments in the previous chapters.Traditional economics assumes that we are all rational—we know the information relevant to deciding everything, we can calculate the value of the various options we face, we can correctly weigh the intricacies of each option, and our perception of things Know if you will encounter obstacles. This assumes that we can make informed, logical decisions.Even if we occasionally make wrong decisions, from the perspective of traditional economics, we can learn from our mistakes immediately and automatically, or use "market forces" to learn from them.From these assumptions, economists draw conclusions covering everything from buying trends to laws to public policy. However, the results of experiments in this book (and others) show that we all make far less rational decision-making processes than conventional economic theory assumes.Our irrational behavior is neither random nor purposeless; it is regular and predictable.We are bound by our brains to make certain mistakes over and over again.Is it not logical, then, to revise traditional economics away from naive psychology—which often fails the tests of reasoning, introspection, and, above all, experimentation? Wouldn't it make more sense if economics were based on what people actually do, rather than what they should do?As I pointed out in the introduction to this book, in a nutshell, the thrust of the new discipline of behavioral economics is to focus (very intuitively) on the notion that people often don't behave rationally, that they often make mistakes in their decisions .The experiments described in this book represent only a small sample of this emerging field of research. In many ways, traditional economists and Shakespeare and others have an overly optimistic view of human nature because they assume that our ability to reason is unlimited.Based on the observation of the same problem, behavioral economics recognizes the shortcomings of human beings. Their performance in many aspects is far from the ideal state, so our view of human nature is quite pessimistic.Indeed, it is quite pessimistic to realize that all of us are constantly making all kinds of irrational decisions in our personal, professional, and social lives.But there is always a bright side to it, and the fact that we make mistakes also shows that there are ways to improve our decisions—thus the opportunity for a “free lunch.” One of the main differences between traditional economics and behavioral economics involves the concept of a "free lunch."According to the assumption of traditional economics, all human decisions are rational, based on reliable information, driven by both the value of all products and services and the happiness index that the decision may bring.Under this set of assumptions, everyone in the market tries to maximize revenue and optimize experience.The upshot is that conventional economic theory asserts that there is no free lunch—if there was one, it would have been discovered and stripped of its value long ago. On the contrary, behavioral economists believe that people are susceptible to irrelevant emotions, myopia, and other forms of irrationality (see examples in the chapters of this book) from their surroundings (what we call situational effects).What good news comes from the realization of all this?The good news is that these mistakes also present opportunities for improvement.If we are regularly making mistakes in our decision-making, why not develop new strategies, new tools, and new methods to optimize our decision-making process and improve our collective well-being?This is exactly what behavioral economics means by a "free lunch"—the idea that we can all use the tools, methods, and policies to improve our decision-making processes and reduce mistakes so that we can get what we want. From the perspective of traditional economics, why are Americans unwilling to save enough to prepare for retirement?This is a pointless question.If our decisions in all areas of our lives are sound and informed, then we save as much as we need.We don’t save much because we don’t care about the future, because we retire poorly, because we count on our kids to support us, or we count on winning lottery tickets—there could be any number of reasons.The most important point is that from the perspective of traditional economics, whether we save and how much we save is entirely determined by our own preferences. But behavioral economics does not assume that people are rational, and from that perspective there are good reasons for our reluctance to save adequately.In fact, experiments in behavioral economics point to many possible reasons why people don't save enough for retirement.People procrastinate; people have a hard time understanding the benefits of saving and the costs of not saving (imagine how much better your retirement would be if you put an extra $1,000 a month into your retirement account for the next 20 years ?) Rising house prices make people believe they are really rich; it is easy to get into the habit of overspending, but very hard to break it; and so on.There are many more reasons for this. From the perspective of behavioral economics, the potential for a free lunch lies in some new approaches, mechanisms and other interventions.It helps people do better what they really want to do and get what they really want.For example, innovative new self-control credit cards of the kind I describe in Chapter 6 could help people better regulate themselves in the consumer arena.An example of another approach is the mechanism called "save more for tomorrow," which was proposed and experimented with some years ago by Dick Thaler and Shlomo Benardz. experiment "Save more for tomorrow" works like this: when new employees come to the company, according to the company's regulations, they decide what percentage to deduct from their salary and put it into the pension plan. With growth, they are willing to take a few percent of it and put it into a pension plan.It is difficult to sacrifice immediate consumption for the sake of the distant future, but it is psychologically easier to bear a little sacrifice for future consumption; future wage growth is not yet visible, so it is easier to take a few percent out of it. When Thaler and Benartz took this plan to a company to practice, the employees agreed to participate and were willing to contribute a few percent of future salary increases to participate in this arrangement.What happened?Over the past few years, with the increase of employees' wages, the savings rate has increased from about 3.5% to about 13.5%--employees, employees' families, and the company have all benefited from it. Now employees have a stable heart and more satisfied people. fewer people. The basic concept of the free lunch is here - to benefit all parties concerned and achieve "win-win".It’s important to note that these free lunches are not necessarily free of cost (there are inevitably costs involved in using self-discipline credit cards and implementing “save more tomorrow”).But as long as the benefits of these mechanisms outweigh the costs, we should treat them as free lunches—mechanisms that bring net benefits to all parties. If I were to distill one important lesson from the research I describe in this book, it would be that we are all pawns on the chessboard with little understanding of the many forces at play.We often think of ourselves as sitting firmly in the driver's seat, supremely in control of our decisions and the direction of our lives; What you take for granted—not reality. Each chapter of this book describes a force (emotions, relativity, social norms, etc.) that affects our behavior.These forces exert a great influence on our conduct, and our nature causes itself to greatly underestimate them.They work not because of our lack of knowledge, our lack of practice, or our inherent incapacity.On the contrary, it is not only novices but also experienced experts who are repeatedly affected. The way of influence is predictable and the mistakes are directly related to how we live and how to "do business". These mistakes have become our life. part. The same can be illustrated with optical illusions.Just as we are inevitably fooled by visual illusions, we are also caught in the "decision illusions" that our own brains bring into play.The problem is that our perceptual and decision-making environment is filtered through our eyes, ears, taste and touch, and the brain that dominates all thoughts.By the time we understand and digest information, it is no longer necessarily a true reflection of reality.Rather, it is simply our interpretation of reality on which we form the basis for our decisions.We are essentially limited by the tools nature has given us, and the way we make decisions is limited by the quality and precision of those tools. A second important lesson is that, while irrationality is commonplace, it doesn't mean we're all incurable.Once we understand when and where our bad decisions come from, we can be more vigilant, force ourselves to reconsider those decisions from a different perspective and in a different way, or use technology to overcome our inherent shortcomings .Business decision makers can also change their way of thinking in these areas, considering how to formulate policies, design products, and create free lunches. Thank you for reading this book.It is my hope that you will gain some interesting insights into human behavior, understand what drives our lives, and discover some ways to improve decision-making.I also hope to share with you my passion for the study of rationality and irrationality.In my opinion, studying human behavior is an amazing enterprise because it helps us better understand ourselves and unravel many of the mysteries of our daily lives.This topic is very important and fascinating, but it is not easy to study. There is still a long way ahead of us, and there are still many things to do.As Murray Gell-Mann, the Nobel laureate in physics, once said, "You think, if particles can think, how difficult it would be for a physicist to be a physicist."