10 units of pain for the first $25 that he or she pays; maybe 7 units for the next $25; 5 units for the next $25; and 4 units for the last $25. The total of 26 units of pain lowers the amount of pain for the entire table by 14 units. The general point is this: we all love getting our meals for nothing, and as long as we can alternate payers, we can enjoy many FREE! dinners and derive greater overall benefit from our friendships in the process.
“Aha,” you might say, “but what about times when I eat only a green salad while my friend’s husband orders a green salad, a filet mignon dinner, two glasses of the most expensive cabernet sauvignon, and a crème brûlée for dessert? Or when the number of people changes the next time we gather? Or when some people in the group leave town altogether? All of this leaves me holding the bag.”
Certainly, there is no question that all these considerations make the “I’ll buy this time, you buy next time” approach less economically efficient. Nevertheless, given the huge benefits in terms of the pain of paying that this method delivers, I personally would be willing to sacrifice a few bucks here and there to reduce the pain of paying for my friends and myself.
Appendix: Chapter 3
Let me explain how the logic of standard economic theory would apply to our setting. When a person can select one and only one of two chocolates, he needs to consider not the absolute value of each chocolate but its relative value—what he gets and what he gives up. As a first step the rational consumer needs to compute the relative net benefits of the two chocolates (the value of the expected taste minus the cost), and make a decision based on which chocolate has the larger net benefit. How would this look when the cost of the Lindt truffle was 15 cents and the cost of the Hershey’s Kiss was one cent? The rational consumer would estimate the amount of pleasure he expects to get from the truffle and the Kiss (let’s say this is 50 pleasure units and five pleasure units, respectively) and subtract the displeasure he would get from paying 15 cents and one cent (let’s say this is 15 displeasure units and one displeasure unit, respectively). This would give him a total expected pleasure of 35 pleasure units (50 – 15) for the truffle, and a total expected pleasure of four pleasure units (5 - 1) for the Kiss. The truffle leads by 31 points, so it’s an easy choice—the truffle wins hands down.
What about the case when the cost is reduced by the same amount for both products? (Truffles cost 14 cents and the Kiss is free.) The same logic applies. The taste of the chocolates has not changed, so the rational consumer would estimate the pleasure to be 50 and five pleasure units, respectively. What has changed is the displeasure. In this setting the rational consumer would have a lower level of displeasure for both chocolates because the prices have been reduced by one cent (and one displeasure unit). Here is the main point: because both products were discounted by the same amount, their relative difference would be unchanged. The total expected pleasure for the truffle would now be 36 pleasure units (50 - 14), and the total expected pleasure for the Kiss would now be five pleasure units (5 - 0). The truffle leads by the same 31 points, so it should be the same easy choice. The truffle wins hands down.
This is how the pattern of choice should look, if the only forces at play were those of a rational cost-benefit analysis. The fact that the results from our experiments are so different tells us loud and clear that something else is going on, and that the price of zero plays a unique role in our decisions.
CHAPTER 4
The Cost of Social Norms
Why We Are Happy to Do Things, but Not
When We Are Paid to Do Them
You are at your mother-in-law’s house for Thanksgiving dinner, and what a sumptuous spread she has put on the table for you! The turkey is roasted to a golden brown; the stuffing is homemade and exactly the way you like it. Your kids are delighted: the sweet potatoes are crowned with marshmallows. And your wife is flattered: her favorite recipe for pumpkin pie has been chosen for dessert.
The festivities continue into the late afternoon. You loosen your belt and sip a glass of wine. Gazing fondly across the table at your mother-in-law, you rise to your feet and pull out your wallet. “Mom, for all the love you’ve put into this, how much do I owe you?” you say sincerely. As silence descends on the gathering, you wave a handful of bills. “Do you think three hundred dollars will do it? No, wait, I should give you four hundred!”
This is not a picture that Norman Rockwell would have painted. A glass of wine falls over; your mother-in-law stands up red-faced; your sister-in-law shoots you an angry look; and your niece bursts into tears. Next year’s Thanksgiving celebration, it seems, may be a frozen dinner in front of the television set.
WHAT’S GOING ON here? Why does an offer for direct payment put such a damper on the party? As Margaret Clark, Judson Mills, and Alan Fiske suggested a long time ago, the answer is that we live simultaneously in two different worlds—one where social norms prevail, and the other where market norms make the rules. The social norms include the friendly requests that people make of one another. Could you help me move this couch? Could you help me change this tire? Social norms are wrapped up in our social nature and our need for community. They are usually warm and fuzzy. Instant paybacks are not required: you may help move your neighbor’s couch, but this doesn’t mean he has to come right over and move yours. It’s like opening a door for someone: it provides pleasure for both of you, and reciprocity is not immediately required.
The second world, the one governed by market norms, is very different. There’s nothing warm and fuzzy about it. The exchanges are sharp-edged: wages, prices, rents, interest, and costs-and-benefits. Such market relationships are not necessarily evil or mean—in fact, they also include self-reliance, inventiveness, and individualism—but they do imply comparable benefits and prompt payments. When you are in the domain of market norms, you get what you pay for—that’s just the way it is.
When we keep social norms and market norms on their separate paths, life hums along pretty well. Take sex, for instance. We may have it free in the social context, where it is, we hope, warm and emotionally nourishing. But there’s also market sex, sex that is on demand and that costs money. This seems pretty straightforward. We don’t have husbands (or wives) coming home asking for a $50 trick; nor do we have prostitutes hoping for everlasting love.
When social and market norms collide, trouble sets in. Take sex again. A guy takes a girl out for dinner and a movie, and he pays the bills. They go out again, and he pays the bills once more. They go out a third time, and he’s still springing for the meal and the entertainment. At this point, he’s hoping for at least a passionate kiss at the front door. His wallet is getting perilously thin, but worse is what’s going on in his head: he’s having trouble reconciling the social norm (courtship) with the market norm (money for sex). On the fourth date he casually mentions how much this romance is costing him. Now he’s crossed the line. Violation! She calls him a beast and storms off. He should have known that one can’t mix social and market norms—especially in this case—without implying that the lady is a tramp. He should also have remembered the immortal words of Woody Allen: “The most expensive sex is free sex.”
A FEW YEARS ago, James Heyman (a professor at the University of St. Thomas) and I decided to explore the effects of social and market norms. Simulating the Thanksgiving incident would have been wonderful, but considering the damage we might have done to our participants’ family relationships, we chose something more mundane. In fact, it was one of the most boring tasks we could find (there is a tradition in social science of using very boring tasks).
In this experiment, a circle was presented on the left side of a computer screen and a box was presented on the right. The task was to drag the circle, using the computer mouse, onto the square. Once the circle was successfully dragged to the square, it disappeared from the screen and a new circle appeared at the starting point. We asked the participants to drag as many circles as they could, and we measured how many circles they dragged within five minutes. This was our measure of their labor output—the effort that they would put into this task.
How could this setup shed light on social and market exchanges? Some of the participants received five dollars for participating in the short experiment. They were given the money as they walked into the lab; and they were told that at the end of the