Split the Bill or Pay Your Own?
At one point, most of us have probably gone out to eat with friends in a sit down restaurant. Everything is nice and dandy until the subject of the bill finally comes up. Now, it is time to decide whether the group wants to split the bill evenly amongst everybody or just have everybody pay for what he or she ordered. Intuitively, it makes sense to say that everybody should pay only for him or herself. Using game theory and basic assumptions about human nature, it is logical to conclude that paying for only oneself is actually the most efficient method.
The experiment linked by the website (given below) was performed in 2002. The experiment was as follows. The subjects were split into groups of 6, 3 males and 3 females. Each group was not allowed to talk to each other, did not know each other and were given money before the experiment. The groups were subdivided into 3 different categories. One category had to pay their own cost of the meal. The second had to split the cost evenly amongst all members. The last were given a free meal completely “paid” by the experimenters. When the results came up, as expected, the first couple groups that had to pay their own prices did not spend too much. Meanwhile, the second group that split the meal evenly also did not use too much money, though individually, they ordered more expensive things than the first group. Lastly, the final group spent a lot of money on the food, probably because they did not have to pay themselves.
This is an example of the “tragedy of the commons.” That is when a group of people who share a similar resource tend to overexploit it in their own personal interest, even if it is not in the interest of the group as a whole. In this case, it is similar when people share the prices. Because each person does not want to end up as the person who subsidizes for the rest of the group, they tend to order more expensive food. Each person knows that the other would want to do this, so they also up their own costs, even if they don’t necessarily need or maybe even want the more expensive product. That way, they are hurting everybody overall. In an attempt not to be exploited, one might actually hurt themselves and everybody around them.
This is very similar to the Braess’s paradox we covered in class as well. In Braess’s paradox, an addition to a network can actually be detrimental if everybody acts selfishly and chooses the best choice for themselves, but actually ends up hurting themselves and others. When splitting the bill, people tend to order more because they see it as a better deal for themselves even if they don’t necessarily want the extra food. Furthermore, they tend to cost themselves and everybody more money in the end. Since the splitting bill is similar to the “tragedy of commons” phenomenon that predicts a mutual destruction of sorts, like Braess’s paradox, it is better that everybody pays their own price.
We can think of this specific example as a game using game theory. Say there are only two people. If they were to share the bill, both players would pay the average of both their item’s prices. Say player 1’s item’s value is x and player 2’s item’s value is y. Their options are to pay individually or split the price. If X<Y, Player 1 would want to pay individually and player 2 would want to split. If Y<X, Player 2 would want to pay individually and player 1 would want to split. Only if Y and X are equal do both of the players want to split.
Furthermore, with a second person (or more) to help “subsidize” the price, it is like getting a discount on your price. People would then be more likely to spend more because they think that they don’t have to pay as much for something if the price is split.
Even though the results from the experiment shows that overall, people do get more expensive food when splitting the costs evenly, the actual increase is not that great. What this implies is that people do have some sort of accountability when they know they are imposing their own prices on others. They don’t want to be taken advantage of, but they also don’t want to be the one who takes advantage of the others.
Because of the “tragedy of the commons,” it is most efficient to pay your own price in order to minimize your costs as well as stop others from taking advantage of you. However, it seems that common courtesy and responsibility will stop people from taking too much advantage of others. This is an example of how social convention and relationships can play into showing that not all games always end up the most logical. Like the experiment we did in class that showed that even when a person has a lot of power, he is willing to offer the person of lesser power a better deal than what is the baseline offer.
Also, keep in mind that restaurants sometimes do take note of this phenomenon. That way, they might even encourage that groups split the tab rather than pay individually.
LINK: http://mindyourdecisions.com/blog/2008/01/29/game-theory-tuesdays-dividing-a-restaurant-bill/