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The Fixed Price Paradox: Con Icting Effects of "All-You-Can-Eat" Pricing
The Fixed Price Paradox: Con Icting Effects of "All-You-Can-Eat" Pricing
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David R. Just
Cornell University
Brian Wansink *
Cornell University
June 9, 2008
*
David R. Just is Associate Professor of Applied Economics and Management also at Cornell University
254 Warren Hall, Ithaca NY 14853-7801 607-255-2086 (drj3@Cornell.edu). Brian Wansink is the John S.
Dyson Professor of Marketing and of Nutritional Science in the Applied Economics and Management
Department of Cornell University, 110 Warren Hall, Ithaca NY 14853-7801, 607-255-5024
(Wansink@Cornell.edu). The authors thank Karla Monke and Anna Davidowitz for help with data
collection and Joost Pennings and James D. Hess for earlier conversations.
1
The Fixed Price Paradox:
Conflicting Effects of “All-You-Can-Eat” Pricing
ABSTRACT
Does the fixed price a person pays for an unlimited service, such as an all-you-can-eat buffet,
influence how much is consumed and the perceived quality of the experience? We show that
when a person’s choice is conditioned on them selecting a fixed price plan, their desire to get a
“good deal,” can lead them to eat more and possibly enjoy it less. A study is reported in which
decreasing the fixed price of a zero marginal cost good also decreased its consumption.
Specifically, when the price of an all-you-can-eat pizza restaurant was discounted by 50%,
customers who were randomly given the discount ate fewer pieces of pizza (2.95 vs. 4.09) than
those who had not been given the discount. Price level should have no impact on how much of
an unlimited resource is consumed or on one’s perceived quality of the pizza. Thus we provide
evidence of the sunk cost fallacy in a food consumption context.
2
It is conventionally believed that aggregate consumption varies negatively with price increases.
In unlimited use contexts -- such as all-you-can-eat buffets -- the commonly employed notion of
utility suggests that once a purchase has been made, consumption should not vary with price.
Declining marginal utility, under such a regime, should lead the consumer to the point where the
experience no longer brings enjoyment or utility. Hence, one should eat until their utility of
Alternatively, the behavioral notion of the sunk cost fallacy suggests that an individual’s
consumption volume may instead vary positively with price. What may partially motivate
consumption in these instances is a desire to “get one’s money’s worth.” This is the basic notion
that individuals amortize the fixed cost of the experience (product or service) over as many
occasions or as much volume as possible. In this way, the price per experience – be it a piece of
pizza or a round of golf – can be reduced to the point where the individual feels they did not pay
This research investigates the key question: How does pricing influence consumption in a
fixed price context? Knowing this will help extend recent work examining consumer choice
conditional upon choosing a fixed price plan. We examine the impact of fixed pricing in the
context of an all-you-can-eat (AYCE) buffet. Because of the growing number of both obese
individuals and fixed price restaurants in the United States, this issue is of acute interest and may
help answer questions regarding whether new marketing techniques are contributing to the
obesity problem.
3
Following a discussion of the economic literature regarding fixed pricing and the
conflicting nature of utilitarian versus hedonic motivations in fixed price contexts, a basic model
is proposed. A simple experiment in an AYCE pizza restaurant confirms the sunk cost fallacy.
We find that individuals are significantly motivated by a desire to get their money’s worth. This
is evidenced by increase consumption of pizza when the cost of the buffet is higher. Implications
Fixed pricing is common in many service contexts, including those involving season passes (or
even day passes) to amenities such as golf courses, gyms, subways, and amusement parks. This
pricing method involves a one-price option that provides the consumer with access to the good
with zero marginal cost to increased levels of consumption. This type of pricing has many
appealing features to it, such as savings in transaction costs for both consumers and managers
(Nahata, Ostaszewski, and Sahoo 1999). 1 Within this section we discuss the recent literature
examining fixed pricing, and the conflicting utilitarian motivation and hedonic motivation this
pricing elicits.
Throughout this paper we consider AYCE as a specific example of fixed pricing. This
form of fixed pricing has particular policy relevance. AYCE pricing is pervasive in hotel
restaurants, college dining halls, social events and in many restaurants. What started with
California salad bars in the 1970’s (Auchmutey 2002) has lead to a 7% annual increase in the
prevalence and popularity of AYCE buffets and one-price restaurants in the United States
(Nation’s Restaurant News 2001). Yet this is not simply an American phenomenon – one recent
twist can be found in the “pay-by-the-minute” restaurants in Tokyo and Taipei. These AYCE
1
It is easy to see the appeal of such pricing to a manager or service provider. The key trade-off is between
extra product costs versus the potentially higher revenue and savings in transaction costs.
4
buffets provide a greater ability to maximize hedonic (taste) utility for diners by offering greater
selection, flexibility, and portion control compared to standard menu restaurants (Peregrin 2001).
Recent studies suggest that AYCE can contribute substantially to weight gain. For example,
Levitsky, Halbmaier and Mrdjenovic (2004) report that eating at an AYCE dining hall accounted
for 20% of college freshmen weight gain. In an obesigenic environment, where 72% of all
Americans are overweight (Wolf and Colditz 1998; Allison et al. 1999) our study contributes to a
major national policy debate by examining how consumers respond to pricing and quality
decisions in an AYCE environment – and hence how profit motives may interact with decisions
to overeat.
From the firm’s point of view, several possible motivations for offering fixed price plans have
been suggested in the literature. Potential motivations include both rational and behavioral
models. Rational motivations for fixed pricing plans include increasing sellers profits by
exploiting an ability to price discriminate (e.g., Miravete and Roller 2003; Sundararajan 2004),
or the results of competitive pricing pressures for goods with zero marginal cost (Fishburn,
Odlyzko and Siders 1997). Under these motivations, consumers simply choose fixed pricing
plans because they result in a lower cost for the services they employ.
Behavioral motivations for consumers and firms to choose fixed pricing plans fall
generally under the heading of behavioral industrial organization. For a complete summary of
this literature, we refer the reader to Ellison (2006), who highlights the general theme of rational
firms exploiting irrational consumers through alternative pricing schemes. Della Vigna and
Malmendier (2004) examine how self control issues and delayed costs or benefits can affect
firm pricing strategies. In particular, firms can design pricing structures to take advantage of
consumer misperceptions regarding future use of a good. For example, a good that provides
5
immediate benefits and future costs (e.g., credit card debt) will be priced to inflate future
payments on debt. An individual who believes that they will exercise greater fiscal constraint in
the future will anticipate a lower price for their debt than will actually be realized, and consume
more. Alternatively, goods that provide immediate costs and future benefits (e.g., gym
participation) will be priced to reduce per use payments and increase up front payments.
examining fixed price versus pay as you go options. Behavioral motivations for consumers’
choosing a fixed price plan include consumer ignorance or inexperience (Miravete 2003), or a
consumer’s inability to determine the lowest price option given their propensity for use (Della
Vigna and Malmendier 2006), insurance (Miravete 2002), that consumers simply enjoy flat rate
pricing more than piece rate pricing (Prelec and Loewenstein 1998), inconvenience associated
with choosing the correct plan (Winer 2005). Our study falls squarely under the behavioral
model of fixed price consumption. However, we focus only on consumption behavior given
fixed prices rather than the selection between fixed and unit rate plans.
Although fixed pricing (versus ala cart or menu pricing) appeals to many segments of
consumers (Nunes 2000), consumers may not always “get their money’s worth.” As many
experience with cellular phone plans, fixed pricing can often result in people under-consuming to
the point where consumers would have been better off purchasing via a traditional pay by the
minute plan (Miravete, 2003). Miravete finds that those choosing flat rate pricing plans tend to
be those that place heavier call volume. Consumers appear to respond correctly to the monetary
incentives despite total cost differences that are relatively small (less than $5 per month on
average). This stands in stark contrast to the behavior reported by Della Vigna and Malmendier
(2006), who find that individuals routinely choose flat fee gym memberships when it would be
cheaper to pay for short term use. In this case, individuals’ behavioral response results in an
6
average loss of $600. Hence, there appears to be some evidence that individuals fail to fully
The results of Della Vigna and Malmendier (2006) seem all the more astounding if we believe in
the “get your money’s worth” notion popularized by Thaler (2004) as transaction utility. Thaler
decomposes the utility from a purchase into acquisition utility and transaction utility. Acquisition
utility is determined by the excess value of the good to the consumer minus the value of the
money used in acquiring the good. Transaction utility is the notion that individuals derive some
utility from obtaining a good deal on the item. Thaler notes that this is context dependent,
providing an example from a survey eliciting consumer willingness to pay for beverages. In the
hypothetical situation, a friend was to purchase their favorite beer for the respondent and deliver
it to them on the beach. Those asked their willingness to pay if the friend was going to purchase
it at a hotel resort were willing to pay substantially more than those who were told the friend
would purchase it at a run-down grocery store. Thaler suggests that individuals compare the
price of an object to a reference price for that context. Thus, individuals are not willing to pay as
much for a beverage in a context where they believe it would naturally be cheaper (e.g., in a run
down store).
More importantly for this study, Thaler’s notion of transaction utility suggests consumers
feel better off when they have paid a low average price for the goods consumed. This has
interesting implications for fixed price contexts. In this case, we should see that people vary how
much they use the gym based on the price they paid. Because consumers realize that per unit
cost drops linearly with consumption quantity, they may believe that consuming more becomes a
better bargain (compared to a variable price good). After one has paid for a gym membership, or
an AYCE pizza buffet, the only way transaction utility can be increased is by increasing one’s
7
consumption of the good. Such an effect should increase the number of visits by those paying for
a full gym membership. The impact of perceived unit cost on consumption is well documented.
For example, Wansink (1996) finds the per unit cost of product influences consumption given
package size. 2
An interesting issue arises when increases in transactional utility conflict with one’s
distaste for a food or the limits on one’s enjoyment from visiting the gym. In the traditional
one consumes more. Consider Figure 1, which illustrates a traditional utility of consumption
function, with utility on the vertical axis and consumption quantity on the horizontal axis. We
will refer to this as hedonic utility – which considers enjoyment from consumption apart from
transaction utility. The hedonic utility has a distinct optimum at x*. If we consider this to
represent the consumption of a food, consuming too little may leave the consumer uncomfortably
hungry or at least desiring more. If they consume too much, the consumer may be
If the consumer has paid a fixed price for consumption, a desire for transaction utility
may increase consumption. If this pressure to consume more is strong enough, it may lead the
consumer to eat more than they want in terms of hedonic utility alone, placing them on the
downward sloping portion of the utility curve. Satiation and “burnout” can limit incremental
[Insert Figure 1]
2
This research underscores the importance of controlling for variables such as package sizes when one
examines the impact of taste on consumption. However, while package sizes stimulated increased
consumption by 49% and 60% for relatively favorable and unfavorable foods, these results should be
considered suggestive, not conclusive. One reason we might see seemingly greater increases among
relatively unfavorably tasting products is because there is a ceiling of how much a person can eat, and it
may be that people eating favorable-tasting popcorn reach that ceiling more quickly and with smaller
containers. Furthermore, the lack of a direct taste manipulation and other possible confounds between
variables such as taste and mood states may limit the generalizability of these results.
8
Herein lies the consumer dilemma. Transaction utility motivations exist because
the per unit cost decreases linearly with consumption, yet this is in conflict with hedonic
motivations. Decreasing marginal utility holds that sensory ratings decrease with
In his landmark article incorporating behavioral phenomena into models of consumer choice,
Thaler (1980) cites anecdotal evidence for the sunk cost fallacy. According to the sunk cost
fallacy, individuals consider their cost history as well as incremental costs and benefits when
making decisions. 4 Consistent with this, Arkes and Blumer (1985) conducted an experiment
randomly offering theater goers different prices for season ticket packages. They found that those
paying more for the tickets attended significantly more plays within the first half of the season,
We suggest that finding correlations between price and consumption is a weak test of the
sunk cost fallacy. Rather the sunk cost fallacy requires that (i) some amount of money be paid up
front, (ii) the object of marginal consumption becomes undesirable and (iii) the individual
continues to consume trying to recover the sunk costs. If the marginal net benefit from continued
consumption does not become negative, then we should expect no correlation between fixed
expense and consumption. If we find little correlation between fixed price and consumption, this
would not negate the sunk cost fallacy as it may simply mean that all individuals faced positive
3
In a prestudy, 16 college students were asked to eat 77 square inches of pizza that had been cut into 10
square pieces. After each piece of pizza, they were asked to rate the taste of the pizza on a 0-100 scale. On
average, after the 4th piece of pizza, ratings dropped at the average rate of 3.4 points (P<.01).
4
Near the end of the section describing this phenomenon Thaler inserts an important footnote that contains
nearly all of the evidence for the sunk-cost fallacy (Thaler, 1980, p. 48):I also plan some experiments to test the sunk
cost effect. In one pilot study undertaken by one of my students, Lewis Broad, customers at an AYCE pizza
restaurant were randomly given free lunches. They, in fact, ate less than the control group who paid the $2.50
normal bill.
9
net benefits for the consumption of that good (for example with a single use good). In this case
all who have positive net benefit should continue to consume. Further, finding correlation
between price paid and consumption could happen for two different reasons: (i) Individuals base
consumption on price paid – trying to recover the sunk cost through consumption even if net
benefits have turned negative, or (ii) the individual’s preferences for the marginal consumption
of the item (irrespective of their desire to get their money’s worth) is affected by the fixed price.
For example, if paying a higher price lead one to enjoy the taste of a slice of pizza more, then the
However, we additionally take measures of individual assessment of the taste of the pizza
consumed. This allows us a more powerful test of the sunk cost fallacy, and greater insight into
II. Theory
The consumer is motivated by both a desire to get a “good deal” (transaction utility) and
to increase their hedonic utility (Thaler 2004). At any point during a meal a consumer
can re-evaluate their transaction and consumption utility, yet over the course of the eating
process we suppose the consumer maximizes the utility of hedonic consumption and the
transaction. Specifically, let the consumer who has already paid for an AYCE buffet
solve
(1) max U t ( q | p ) + U c ( q | θ ) ,
q
where q is the quantity consumed, p is the fixed price, θ is the amount that maximizes
10
p , and U c ( ⋅ | ⋅) is the hedonic consumption utility of quantity consumed given the
t
Thaler’s notion of transaction utility requires that U qp > 0 , or, that the marginal
transaction utility of consumption increases with price. This model supposes that
transaction utility and hedonic consumption utility are compensatory. In other words, one
who pays very little for poor quality pizza may be similarly well off as if they had paid a
(2) U qt ( q* | p ) + U qc ( q* | θ ) = 0 ,
By monotonicity of U t , the first term in (2) must be positive, so U qc ( q | θ ) < 0 . Thus, the
level, reflecting that the consumer will over-eat (relative to hedonic consumption utility)
in order to increase transaction utility. This will always be the case if U qt (θ | p ) > 0 .
dq U qpt
( q* | p )
(3) =− t ,
dp U qq ( q* | p ) + U qqc ( q* | θ )
t
which is positive if U qp > 0 . In other words, if increasing the price also increases the
marginal benefit of consumption in terms of transaction utility, then increasing the fixed
price must increase consumption. Thus the higher the price, the more the individual will
eat.
11
It is of interest to know if the price paid may directly influence the evaluation of
the food. One alternative hypothesis that might explain why consumption in an AYCE
context might depend on price is that price may directly affect hedonic utility. Suppose,
for example, a higher fixed price leads the individual to take more or less pleasure in the
taste. In this case price should influence consumption even if the individual does not
Suppose, from (1) that hedonic optimum is a function of price, θ ( p ) . In this case,
reported enjoyment of the pizza should depend on the price paid. Price could influence
hedonic utility through two possible mechanisms. First, individuals may take price as a
suggestive signal of quality, and may thus believe that the pizza is better quality when
they have paid more for it. In this case, θ p > 0 , leading the individual to consume more
when higher prices are charged. This behavior would be identical to that caused by the
transaction utility effect, but has a very different cause. Thus, it is important to
recover cost.
evaluate taste in comparison to the price paid. In this case, we would expect θ p < 0 ,
leading those who face higher prices to give poorer evaluations of the food. If this is the
case, a positive relationship between price and consumption is certainly due to the
Using the AYCE context of a pizza buffet, we want to examine whether the fixed
price a person pays for their buffet influences how much they eat, and how much they
enjoy what they eat. We hypothesize that the amount of food a person will eat is
12
positively correlated with how much they paid for the food. Thus those who pay more
will eat more. Further, we hypothesize that price will impact taste evaluations negatively,
supporting the notion of transaction utility as the motivation for greater consumption
take, what sequence to eat and drink the food, and when to stop. One set of studies
estimates the number of these decisions to range from 200-300 each day (Wansink and
Sobal 2007). One way the nutrition literature has tried to capture this continuous process
is by studying ad labium feeding. One factor that sets this study apart is its investigation
of the trade-off between price and the real-time consumption of a hedonic food. Another
III. Methods
consumption volume could be unobtrusively measured and where the type (and calorie content)
individuals and between conditions. 5 Because pizza can be discretely measured by the piece if
uniformly cut, one field context which met these criteria was an AYCE pizza restaurant.
Cooperation to conduct such a study was given by the Pizza Garden, an AYCE pizza
restaurant one mile south of Champaign, Illinois. The restaurant had an exclusive AYCE pizza
buffet that it served Monday through Friday during lunch hours, and an optional buffet or menu
service it provided on evenings and weekends. The study was conducted during the exclusive
lunch buffet hours on a Tuesday, Wednesday, and Thursday in early April 2005. The between-
5
For a complete discussion of the use of economic experiments in and out of the laboratory see Levitt and
List (2006).
13
subjects randomized block design involved a control group who bought the regular price pizza
buffet ($5.98) and the treatment group who were given a coupon for 50% off this regular price
($2.99). There was concern that it would not legally be possible to manipulate the total price of
the meals. The restaurant did allow us to manipulate the price people ultimately paid by offering
When approaching the restaurant door, participants were approached by one of four
experimenters and asked if they would be willing to answer a couple questions related to the
restaurant. In exchange for their cooperation, the groups of participants who had been randomly
assigned to the treatment condition were given coupons for 50% off each of their buffets (along
with coupons for free soft drinks). Those groups of participants in the control condition were
simply given coupons for free soft drinks. No group was told what they would receive in
People who were approached in groups (such as those who arrived in the same car) were
all assigned to the same condition. Groups were approached in alternating order regardless of
their size. That is, the first group was offered the discounted coupon and drink, while the second
group was offered only the drink. It was important to alternate the treatments between groups in
order to control for different effects that might otherwise be attributed to differences in the time
of day or the day itself (such as Tuesday versus Wednesday). The data was collected from 11:30
to 1:30, and the weather was sunny and warm during all three days.
Of the 20 groups of people (79 individuals) who were approached, all but four groups (13
people) participated. Three groups declining to participate included, three emergency medical
technicians, four men dressed in suits, and a male and female couple. No record was made as to
which group they would have been assigned had they agreed to be involved in the study. Another
group consisting of four police officers agreed to participate in the study, but were called away
14
after entering the restaurant and before being seated. Thus, of the 70 people who originally
agreed to be in the study, complete data was collected from 66. For the purposes of this paper
we treat them as refusing the study. Of those approached (both those participating and those
refusing) all but the one group of four that were called away, ordered the pizza buffet (95%).
Because the pizza buffet was the only non-drink menu item available at the time, and participants
were selected only once their intent to enter the restaurant was clear, we believe that all had the
It is important to underscore that the pizza restaurant exclusively served the pizza buffet
during lunch times when the experiment was administered. No menu was provided to order ala
cart. People who had selected to eat at this restaurant would have predetermined to eat the
buffet. Indeed, no individuals included in either treatment failed to purchase the pizza buffet or
After providing informed consent, people were asked two restaurant-selection questions
which were intended to distract them from the true purpose of the study: (1) “What other places
did you consider for lunch?” and (2) “Why did you choose this restaurant?” They were then
thanked and last asked if they would mind answering a short series of questions when they
finished their meal in return for a coupon. All agreed. We then gave them a coupon depending
While in the restaurant, pizza consumption was measured by three assistants who served
as hostesses. These assistants were blind to the purpose of the study and had no knowledge of
which patrons had been randomly assigned to which conditions. They noted how many pieces of
pizza each person brought back from the buffet table and how much was left uneaten after they
completed their meal. Because these hostesses were continually responsible for busing tables,
this was possible to do without raising suspicion. Uneaten pizza was weighed in a back room to
15
more accurately assess what percentage of the pizza taken was actually eaten. Thus, the amount
of pizza consumed was recorded as a continuous variable in terms of fractional number of slices.
A wide variety of pizza was served (8 pieces/pizza), and an analysis by a dietician indicated that
the average piece contained 358 calories and 13 grams of fat. Because of difficulty in precisely
identifying the types of residual pizza remaining, averages were used to calculate caloric and fat
Following their meal, participants were intercepted as they paid at the cash register, and
each was given a short questionnaire which asked for demographic information along with a
variety of questions as to how much they believed they ate, and their attitude toward the pizza.
Other than questions involving numerical estimates, most questions asked their agreement with a
Because the general consumption amounts may differ based on gender, age, height, and how
many people a person is dining with, we used two different tools to include these socio-
demographic variables when comparing consumption and the evaluation of the food within and
across treatments. Consistent with a review of other field studies related to food intake
(Wansink 2004), we find that these demographic variables appear to only shift the mean of
consumption.
When comparing those receiving the 50% discount to those who paid full price, we
make use of the matching techniques for evaluating treatment effects developed by Abadie,
Drukker, Herr and Imbens (2001). This technique uses minimum distance measures to match
control for gender, age, height, and the number of individuals eating in the group. We will refer
16
It has been shown that the number of people eating in a group can significantly affect
the amount of food eaten (DeCastro 2000). In each of our regression analyses, we include group
linear increasing function of group size. However, with groups ranging in size only from 1 to 7,
there is not sufficient variation, particularly in larger groups, to allow precise estimation of
minimum distance matching estimation. Table 1 presents summary statistics for each of the
consumption and socio-demographic variables as well as the taste and quality evaluations.
[Insert Table 1]
As predicted, people who paid the regular price for the pizza buffet tended to eat more pizza
(4.09 slices versus 2.94; F(1,64) = 6.52, p-value = 0.013). Figure 2 displays the average
consumption and taste ratings by treatment. A permutation test of the difference in mean
consumption results in an exact p-value of 0.006 with 10000 replications. Table 2 contains the
estimated treatment effects for several outcome variables controlling for socio-demographic
variables using the minimum distance matching estimator. We find that the 50% discount
decreases consumption by about one slice of pizza (significant at the 0.01 level). Thus, we find
evidence that increasing the price also increases the consumption of pizza. On average, each
person paying the full price ate 1.145 more slices, representing an increase of 27.9%. This
translated into an increased consumption of 365 calories (1110 vs. 1468) and 13.3 grams of fat
17
Table 3 displays the impact of the coupon on consumption estimated using standard
Tobit estimation. The results remain the same when controls for socio-demographic variables
are included, as well as when the date of participation is included. In each of these regressions,
in the matching treatment effect estimation and in the uncontrolled summary statistics, paying
half price reduces consumption by about one slice of pizza on average, or about one quarter of
total consumption. Thus we see robust evidence that price paid has is positively correlated with
[Insert Table 3]
Both groups of consumers were reasonably accurate in estimating how much pizza they
had eaten. The average difference between our exact measures and their recall was 0.05 and
0.08 slices of pizza for the half price and full price treatments respectively. Although it is
generally thought that people have a tendency to mindlessly overeat in these buffet situations,
this suggests that they are generally aware of how much they eat when the item can be
discretely measured as it can with the number of pizza slices consumed. This raises the
question of whether participants eating at a regular price buffet may have knowingly eaten
Although the amount of wasted food was sizable with all consumers, plate waste
doubled in the regular price buffet condition (from .22 to .43 pieces; F=2.09; p=0.15). This
0.326 pieces left, p=0.049, see Table 2). When paying half-price for a buffet, 19% left food on
their plate, but this increased to 37% when they were paying full price. Many consider the crust
of the pizza to be inferior. Hence, those paying more may have attempted to consume more of
the parts of the pizza they enjoy most by reducing consumption of the crust. Informal
18
B. Price and Taste
An alternative test of the transaction utility hypothesis requires us to determine whether the
price paid had any impact on the evaluation of taste. If paying more impacts the taste of the
pizza positively, then the positive relationship between price and consumption may be due to
increased evaluation of taste. If paying more impacts the taste negatively, we have further
support of the transaction utility model, and transaction utility will play an even larger role than
variables (see Table 1) we see that taste evaluations are on average higher when participants
paid less, but insignificantly so. When controlling for socio-demographic variables (see Table
2) lowering the price positively influences the taste of the first slice of pizza (p-value = 0.043)
and the overall taste rating (p-value = 0.096), and the effect is not significant for the last slice.
While the data do not overwhelmingly support a negative relation between price and taste
evaluations, they certainly refute the notion of a positive relationship. Thus, we find further
To examine within group treatment effects (the effect of evaluation on consumption) we use
standard regression analysis since evaluations varied continuously. To examine the impact of
taste on consumption generally, we used Tobit 6 regression analysis, restricting analysis to those
who received the 50% discount. The results are displayed in Table 4. Interestingly, in each of
the regressions, taste is negatively associated with consumption, with the taste of the first slice
being the only significant variable (Model 2 and Model 6). It seems odd that the better the taste,
the less total pizza one ate. This same result was consistent across all people, with socio-
6
The smallest amount consumed was one slice of pizza, with 7 consuming exactly one piece.
19
[Insert Table 4]
Conducting similar analysis on the group not receiving the discount yields the same
sign, though a slightly smaller result (see Table 5). Additionally, when both treatments are
combined and a control is added for treatment, the taste of both the first and last slice of pizza
[Insert Table 5]
While this, admittedly weak, negative relationship between taste and consumption
seems perverse, perhaps it should not be unexpected. Intuitively, it takes a lot of bad pizza to
get one’s money’s worth relative to good pizza. Perhaps if pizza is of an inferior quality,
transaction utility plays a more significant role in determining the optimal stopping point,
producing a seemingly perverse result. Unfortunately, all taste measures were administered ex
post and may display significant bias. An alternative explanation for this result is that
individuals who ate more were simply uncomfortable and this feeling biased their assessment of
taste. Additional research will be needed to clarify this potentially new paradox.
V. Discussion
The sunk cost fallacy is one of the more frequently noted violations of rational behavior. Here
we present clear evidence that the fixed cost fallacy prevails in a transparent market setting that
many people have experienced. We draw attention to two important findings. First, our results
suggest that when paying more for a good, people will consume it at higher levels. The results of
our data actually suggest a possible causal relationship between price and hedonic consumption
utility and between hedonic consumption utility and consumption. Thus, those who pay more are
less capable of enjoying the food and may eat more because of it.
Insofar as hedonic satiation occurs prior to the point where consumption stops, a resulting
decrease in one’s evaluation of the food could simply represent the diminished marginal utility.
20
That is, instead of rating the peak level of quality, one may tend to overweigh the most recent
consumption experience when evaluating the overall taste or quality of the food. This is the
phenomenon described and documented by Kahneman, Wakker and Sarin (1997) in their
exploration of the meaning of utility. We find support for this notion as the rating of the initial
consumption appears to have much more to do with consumption decisions than the rating of the
final consumption.
Many individuals believed they had eaten too much upon leaving the restaurant (e.g.,
48.6% of those paying full price vs. 41.9% of those paying half price, insignificant). Those who
were charged more were more likely to eat more. The ex post evaluation by nearly half of
participants that they had eaten too much suggests that individuals appear to use systematically
different mechanisms to evaluate the optimal stopping point while they eat rather than after they
have eaten. Oddly, while we find that those in the higher priced treatment ate substantially more
pizza, they were not significantly more likely to admit to having overeaten. This may suggest
that individuals consider transaction utility after having eaten as well as when deciding how
much to eat and thus are just as likely to believe they have overeaten.
As Hahata et al (1999) noted, the key trade-off in offering fixed price consumption
opportunities involves the potentially higher revenue and savings in transaction costs versus the
extra production cost. When the transaction cost is relatively high, and the market size is large,
the trade-off can make buffet pricing a more profitable pricing strategy than a two-part tariff.
The additional trade-off that has to be considered, however, is the reflection on perceived quality
and repatronage.
Instead of thinking only in terms of value and perhaps traditionally-defined utility, this
research examines how the utilitarian notion of value can be combined with the hedonic notion.
21
One of the key concerns for consumers in the short-term and in the long-term is to better monitor
and control their consumption and intake of food. In the short-run, not doing so decreases how
much they will enjoy their food and the dining experience. In the long run, it can lead to
Although buffets provide more flexibility and arguably more portion control, they can
also produce over-consumption and regret. One reason people may regret eating at buffets is that
the more they overeat, the less they like the food. The higher the price of a buffet, the greater the
risk of over-consuming. We show that this can cause a nearly 30% increase in consumption.
This may entail greater consumption if we dislike the foods we are eating. The $10.00 Sunday
Breakfast Buffet is a greater danger to our waistlines than the $5.00 luncheon buffet.
In order to conduct this research, it was necessary to find an AYCE context which did not allow
other dining options. In this way, we could be guaranteed that the influence of pricing was
conditioned on the prior decision to eat at the buffet. One issue with this context would involve
the people who self-select themselves into it. It may be that the type of person who chooses to
go to an AYCE restaurant buffet is different in the way they perceive the value of food and any
related quantity-quality trade-off. If a different group of people – perhaps ones who are not
predisposed to frequenting buffets – were put in this situation, it is not known if the effect would
be as strong or whether it might even be stronger. For instance, people who choose an AYCE
restaurant may believe they have an ability to control themselves in this context.
Because of legal and public relations concerns, we did not directly manipulate the stated
price of the meals. We instead offered half-off discounts for the treatment group. It is worth
noting that price discounts may not always be perceived by consumers as equivalent to a lower
price (Anderson and Simester 1998; 2001). In such a case, behavior might be driven more by the
22
proportion of the discount than by the final price (Kahneman, Knetsch and Thaler 1991), and
such discounts may influence perceptions of quality. What works in favor of the results in this
study is that the discounted pizza was still rated as being of higher quality than the undiscounted
meals. Nevertheless, this effect might have been even stronger in a context where the price had
This study examined an ex-post evaluation of both the consumption stopping point and
taste evaluation. Ex post observations of stopping points may not fully capture the process
consumption decisions in a buffet context. Consumers ultimately make decisions after each
helping whether to return to the buffet line. Further, we must acknowledge that taste ratings
compiled ex post must be interpreted with care. Taste may also be negatively correlated with
consumption due to ex post assessment bias. For example, those consuming more may
experience some uncomfortability that affects their assessments. In this case it is unclear how
that bias would affect assessments of the first, last and overall slices differently. It would be
useful to add a time component to this evaluation process. For instance, the often mentioned
notion that our evaluation of satiety lags (some say up to 20 minutes) behind our actual satiety,
might suggest physiological cues might be compromising this evaluation over the course of a
meal. Future studies could measure this orientation, and model it as a part of utility.
VI. Conclusion
The general purpose of this article is to demonstrate the sunk cost fallacy in an AYCE context.
Our results suggest that in an AYCE setting, price positively influences consumption and
related to taste within treatment. Each of these observations supports the notion that individuals
are driven somewhat by transaction utility – a desire to get a good deal – in a fixed price setting.
There are a number of ways in which utility can be conceptualized in these fixed price situations.
23
Several limitations apply to our results, as discussed in the previous section. We provide a
methodological benchmark for future investigations in this area of fixed price research as it
relates to a wide range of contexts, and introduce a seemingly new paradox—that of eating more
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Table 1. How All-You-Can-Eat Buffets Influence Consumption and Satisfaction1
(Standard Deviations in Parentheses)
Labels Significance
Actual Consumption
- Actual number of pieces of pizza taken 3.16(2.08) 4.52(2.39) 5.97(0.02)
- Actual number pieces of pizza consumed 2.94(1.66) 4.09(1.95) 6.52(0.01)
- Average number of calories of pizza eaten 1054(594) 1464(698) 6.52(0.01)
- Plate waste (Actual taken less actual consumed) 0.22(0.53) 0.43(0.65) 2.09(0.15)
Perceived Consumption
- “How many pieces of pizza did you eat today?” 3.00(1.83) 4.17(2.02) 6.04(0.02)
- “How many calories of pizza do you think you ate? 716(668) 697(468) 0.01(0.90)
- “How many pieces does the typical person eat?” 3.94(1.40) 5.75(6.24) 2.50(0.12)
Taste Perceptions
- “The pizza, in general, tasted really great” 6.87(1.68) 6.26(1.52) 2.36(0.13)
- “The first piece of pizza I ate tasted really great” 7.10(1.47) 6.51(1.67) 2.24(0.14)
- “The last piece of pizza I ate tasted really great” 6.71(1.64) 6.49(1.56) 0.32(0.57)
- “The pizza is high quality” 6.16(1.75) 5.60(1.58) 1.88(0.18)
Socio-Demographics
- Age 34.03(12.74) 36.17(11.79) 0.50(0.48)
- Gender (percent male) 0.74(0.44) 0.85(0.36) 1.37(0.25)
- Height (meters) 1.76(0.16) 1.79(0.09) 1.44(0.23)
- Number in group 3.97(1.52) 4.43(1.67) 1.37(0.25)
1
All scaled questions are measured 1 = strongly disagree to 9 = strongly agree.
28
Table 2. The Effect of Paying Half Price Controlling for Socio-Demographic Variablesa
* P<0.10, **P<0.05
a. Results are derived using a minimum distance matching estimator (Abadie et al. 2001).
Matching is based on age, gender, height and number of members in the party.
29
Table 3. The Effect of Paying Half Price on Pizza Consumptiona
Variables Model 1 Model 2 Model 3
-1.209*** -1.039** -1.006**
Half Price
(0.489) (0.482) (0.490)
0.702 0.713
Gender --
(0.682) (0.682)
-0.032 -0.032
Age --
(0.021) (0.021)
2.974 3.054
Height --
(2.180) (2.189)
0.021 0.026
Group --
(0.154) (0.154)
0.056
Day 2 -- --
(0.609)
-0.178
Day 3 -- --
(0.571)
2.808*** -1.947 -2.061
Constant
(0.358) (3.562) (3.630)
Pseudo-R2 0.022 0.049 0.049
a. Consumption is measured continuously in slices consumed, calculated by
comparing total number of pizza slices taken minus the total plate waste divided
by the average weight of a slice of pizza. Estimates result from Tobit estimation
30
Table 4. The Effect of Taste on Pizza Consumption for those Receiving a 50%
Discounta (Standard Errors in Parentheses)
Taste
-0.457** -0.486**
Rating of -- -- -- -- --
(0.208) (0.212)
First
Slice
Taste
-0.289 -0.257
Rating of -- -- -- -- --
(0.203) (0.203)
Last Slice
comparing total number of pizza slices taken minus the total plate waste divided by
the average weight of a slice of pizza. Estimates result from Tobit estimation with a
31
Table 5. The Effect of Taste on Pizza Consumption for those Receiving No Discount
and All Treatmentsa (Standard Errors in Parentheses)
Taste
-0.426* -0.337**
Rating of -- -- -- --
(0.242) (0.147)
First
Slice
Taste
-0.136 -0.265*
Rating of -- -- -- --
(0.222) (0.150)
Last Slice
comparing total number of pizza slices taken minus the total plate waste divided
by the average weight of a slice of pizza. Estimates result from Tobit estimation
32
Figure 1. The Impact of Consumption Quantity on Utility
33
Figure 2. The Relation Between Consumption Quantity and Taste Perception
7.1
7 6.9
6.7 6.5 6.5
6.3 Number of Slices Consumed
6
Perceived Overall Taste of Pizza*
5
Perceived Taste of First Slice*
4.1
4
Perceived Taste of Last Slice*
3.1
3 *1=low; 9=high
0
Half Price Buffet Full Price Buffet
34