The placebo restaurant

From Peter Seebach, I like this idea very much:

This leads to a concept: A restaurant called Placebo. What do they sell? A 50% discount. Which is to say: The entire menu is framed with everything at about twice the price you’d otherwise expect to pay for it, but then your check gets a 50% discount. So say you have a steak roughly of the same quality as the $13 steaks at the Outback Steakhouse. The menu says $26, your bill when it arrives has a 50% discount. But everything you order feels expensive.

And a bit more:

For extra credit, you could do interviews and arrange waiters to adopt personalities which suit the customers. Someone comes in who likes Good Wholesome Cooking? We can set you up with a waiter who thinks fancy food is ridiculous. Or, we can set you up with a waiter who is a total food snob, and you can have a wonderful meal knowing that the waiter is missing out on Good Wholesome Cooking. Your call.

The basic idea here is… people aren’t going out to eat for the food, they’re going out for the experience. Why not sell the experience as-such as the product? And thanks to some lovely research done on placebos in the 60s or so, we know that in some cases they work even if you know it’s a placebo — they’ve been shown to treat depression effectively even when explained.


It's not exactly what you describe, but a pizza place in town has been doing this for over 30 years. 1/2 price on everything.

This is also how most sushi restaurants in Chile (or Santiago, at least) operate. There's the standard price and the "discounted" price 50% off right next to it, in two columns. I can't think of the circumstance when anyone pays the regular price, although occasionally if you pay with a credit card instead of cash, you might get only 40% discounts instead of 50%.

Its a way to cover for credit card fees... which are huge.

Isn't this kind of, sort of, what colleges do using scholarships?

...Not really... Colleges do that as a type of price discrimination so they can maximise economic profits. The smart kids pay less because they can go elsewhere, the poor kids pay less because their willingness to pay is lower.

Could also be a good reason to buy Fairtrade products (if they're more expensive), handmade products that are usually machine-made, or products that donate a portion of the price to charity.

Any price premium will give you a perception of greater quality, so why not go for a premium product that benefits someone else too.

Because it doesn't.

And they cost more.

And they just have the price, not the quality of a "real" premium product.

Um, that's kind of the point. The placebo effect means people are more satisfied and feel happier with more expensive products, even if they're identical to a cheaper product.

Because a) you're actually paying more, which is not what the Placebo suggestion is proposing, and b) you know your extra money is not buying higher quality, but lower efficiency.

"Fair" trade is a con, of the extra 15 cents or what ever you pay for it only a small fraction goes to the farmer and the merchant pockets the rest.

There used to be a deli in my hometown that put the average price in New York for each item on the menu next to the price they were charging. The price they charged was below the New York price, but still high for suburban Detroit, so they failed.

Sounds like a great place for people who assign too much importance to numbers (and their refined tastes) ... I can see why it might appeal to some economists. Fun to think about other applications (wage offers?).

I wonder if the average customer tips higher than 20% of the billed-price after the higher menu-price is placed in their mind.

And do you tip based on the pre- or post-discount price?

I used to scoff at discounts, because of the "raise the price then throw in a discount" trick, until my wife showed me that you can find some real bargains hidden among the discounts.

I have my doubts about the studies showing that placebos can work even on patients who know they are receiving a placebo. From what I've seen, the patients are told they are receiving a placebo in a fairly obscure way and it's not clear that they understand what it means.

+1. I reserve my judgement till I see a Cocharane summary of placebos. Are the results replicable and are they significant?

The instructions were basically "You may have heard that in some studies, tests are done using a sugar pill which contains no medicine, we'd be giving you one of those, with no medicine in it" or words to that effect. Very impressive. Of course, it only works for depression, I suspect. I think it's mostly down to "I am acknowledging my feelings and trying to do something about them".

.........maybe the results offer a peek into the cognitive abilities of the average person signing up for a medical study.

Do I have to wear a Jos A Bank suit to get in?

Came here to mention JAB

There's a Sushi place in Vienna who has been doing that for years now.

It's a college bar rather than a nice restaurant, but Sammy's near NC State has "half price wings" every day. They also offer several beers that are always on special.

This usually works as it implies half price of what we used to sell it at previously or what others around us typically sell at.

GNC does something like that-- the vitamins are divided into sections based on style-- do you want your vitamins to look sciencey? Generic? New Age? Whatever will make you feel better about your vitamins and supplements, they've got it. I haven't checked carefully enough to see whether there are different prices for the same thing.

I'll go there, but only for the music.

>people aren’t going out to eat for the food

Yes, they are.

And you know who says otherwise? Restaurant owners who want to skimp on good food.

Sounds kind of like GroupOn...

Right next door, I will open up a place offering 2/3 off. True, it's not as catchy-sounding as "Half Off!", but a $39 steak must taste much better than a $26 one. (2/3 may be the magic figure; $39 may be the optimal faux price for a $13 steak, since if a would-be competitor goes above $40 by opening a "3/4 off" place next to mine [bastard!], the placebo may not be convincing...diminishing placebo returns.)

This would not fly with Canada's Competition Bureau. First warning.

I remember reading that some country (Britain?) had a truth-in-advertising law that if you declared a discount you needed to had some non-trivial number of items previously sold at the higher baseline price.

That sort of makes sense (not the regulation per se but the baseline sales information). It strikes me that people value knowing that someone's willingness to pay was much higher than the current price.

And if you're in Hanson-Land, you don't care if the WTP was high because the food was actually delicious (and safe), just that you want to affiliate yourself with high-status people who could afford it. Maybe there are some goods that fall into each category.

Ahh, but you're not declaring or advertising the discount. You're carefully NOT advertising it or declaring it. It's just a reality on the final bill charged. It's not a selling point.

Assuming you could "sell" a 50% discount without anyone knowing it, then all you're doing is giving away 50% of your gross or else overcharging and getting no customers. How is this even a good thought experiment?

I can't even imagine trying to enforce this law, but I think it's fascinating because it presumes that what the consumers really care about is not absolute price getting a deal -- the satisfaction of having "gotten one over" on the store. And there is a kind of thrill to the idea that you're getting something at a bargain; it's one reason I love used books.

But think of the kind of facially absurd results this policy may lead to: if two stores sell the same item, one at $12 and one at $10, but the second (wrongfully) claims it's offering a 50% discount, which customer got the worse deal? Objectively it's the one who paid $2 more, but I suspect the one who paid $10 may *feel* more screwed. And it's the second retailer who'd get in hot water.

Elegant example.

Since we know how irrational consumers are; perhaps the equilibrium quantity sold is what they are trying not to distort. It's not as much of individual fairness as global efficiency?

This is the case in the UK. Sometimes you'll see in the small print of an advert offering a big discount, a disclaimer saying when and where the product was being sold at the original price. I'm not sure you need to have sold any items at that price, it just needs to have been on the price sticker in the shop for a while.

Good point - sometimes you offer a discount precisely because you haven't been able to sell any at the higher price

I have a better idea. Auction off each meal. After several minutes of watching the chef stir sizzling food, emotions will be running high. Open the bidding about 60 seconds before the food is ready. People in a hurry can pay more. Slower people can enjoy the show and nab bargains when bidding is weak. People will come for the experience, the auction experience.

If these price tricks didn't work, they wouldn't last.

One place here in Chicago with "atmosphere" is Ed Debevic's. It must be experienced.

My guess is that the mental module for status-seeking in humans would foil this. It might work at first, but eventually word would get around that the restaurant was nothing but a cheap-ass restaurant trying to feel expensive, like the Olive Garden.

It might work better if they can advertise the cheapness to one demographic but hide the information from another so they go on believing its nice, i.e. try to let men know its cheap but not let the information leak to women. Then you could take some status-obsessed woman to the "expensive" restaurant, bed her, and everyone wins. You get sex for less and she gets to think she had an expensive meal.

When I read the title, I thought this would be a restaurant selling placebo food. You know, like those Haitian dirt cookies, or celery.

There are a few places that do this in the neighborhood here. A place with a collection of drinks that are on 24 hour happy hour, a sushi place with all it's rolls at 50% price, all the time.

Consumer products advertising on TV (Shamwow, Slapchop, Shake Weight, etc.) do this all the time. "We'll give it to you for half the price! ... But wait, if you call in the next 10 minutes, we'll throw in a second one!"

a lot of restaurants do it and it brings people in. gimmicks are cheesy but they work.

50% is too simplistic, people will quickly decide your product is low quality. It would make more sense to price everything at $21 then offer a discount so the final price is $19. By breaking the round dollar barrier you're making the customer feel good, without going so far that they start feeling that whatever they're buying must be low quality.

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