What the Market Says about Your Neighbor's Restaurant Choices
By James Schneider
Should your neighbor make healthier choices at restaurants? Market signals are one source of information. Left to their own devices, restaurants rarely provide calorie information at the point of order. Evidently, people do not want to be reminded about the fattening nature of hamburgers right before they order one. You might think that restaurants just don’t want to badmouth their product; hamburgers and other fattening foods are the stock and trade of many restaurants. But this fact is also the market telling us something. Restaurants aren’t intrinsically good places to eat hamburgers and bad places to eat salads. A tasty salad has a lot of ingredients which have a short shelf life — this is the type of meal you might want to outsource to a restaurant. The fact that people eat so many hamburgers at restaurants is a signal that many people prefer eating hamburgers to salads. However, what if these people actually do want to eat salads, but they are irresistibly tempted by hamburgers when they get to the restaurant. Maybe people desire commitment devices to eat better. Does the market have anything to say about this?
The market is often better at abetting good habits than it is at discouraging bad habits. Imagine an alternate world in which a lot of people aspired to smoke more cigarettes but they had trouble sticking to their preferred regimen. In this alternate world, the market might offer yearly memberships that shipped people a carton of cigarettes every week. Or, pharmacies might sell a membership pass, where you get a free or discounted pack of cigarettes every day. These arrangements would incur a fixed cost, but they would lower the incremental cost of smoking additional cigarettes — thus helping you to achieve your goal of smoking more. However, it would be harder for the market to inflate the future cost of cigarettes in the more likely event that you needed help reducing your smoking. Imagine explaining to the local Quickie Mart that higher cigarette prices would further your health goals. What would happen if Quickie Mart obliged your strange request and promised to inflate the price of cigarettes that they sold specifically to you? When cravings struck, you would just buy your cigarettes at a different store.
A common way to foster good future behavior is subscribing to a yearly gym membership. With a yearly membership, the additional cost of going to the gym one more time is $0. This is a significant subsidy because each additional visit increases the cost of running the gym by $3 to $6. The market happily offers this particular commitment device because people frequently overestimate their future desire to go to the gym. The frequency of failed diets suggests that people also overestimate their future desire to eat better. Yet restaurants still don’t seem interested in offering people commitment devices to eat better.
The technology for such commitment devices already exists. Restaurants offer ways to lower the future cost of eating restaurant meals; they just don’t find it profitable to market these programs as ways to encourage healthy eating. Restaurant gift cards have similarities to membership schemes, but they are not geared to encourage healthy eating. A restaurant like Applebee’s could sell gift cards for their salad entrees. This would reduce the future cost of a salad to zero. (And you would probably have to use the card yourself, since it might send the wrong message as a gift.) Restaurants also have loyalty cards and programs that reduce the future cost of eating. Again restaurants do not design these programs to further healthy eating. T.G.I. Friday’s offers a loyalty card that could hypothetically be used for a variety of healthy programs. Technology now allows more elaborate and finely tuned loyalty programs. Applebee’s is upgrading their tabletop electronics system which will facilitate any type of loyalty program imaginable. Smartphone apps like Apple’s Passport system also make any type of contract feasible. Starbucks, Dunkin’ Donuts, and Pinkberry have pioneered these apps. Not surprisingly, these apps aren’t being marketed as ways to help people make healthier restaurant choices. The market offers a lot of programs that could easily be tweaked to be commitment devices. The fact that the market doesn’t offer these commitment devices indicates that they probably aren’t desired.
Here is a good economic overview of commitment devices.