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November 12, 2021

Restaurants are fooling you into spending more money

Behavioural economics is a relatively new field in business, though as consumer tastes become more refined, and bargain hunting becomes more en vogue, it’s never been as prevalent.

What is behavioural economics? It’s the study of how social, cognitive and emotional factors play into the financial decisions of people and institutions. So, let’s put it to use.

The example I always offer when discussing behavioural economics is a good one I’d heard about airlines. Let’s say Airline X wants to attract more travellers by offering a sale, providing 25 per cent off all airfare for a limited time.

According to the principles of behavioural economics, Airline X would be better suited to advertise a contest where one in four tickets would be free. Instead of 25 per cent of all tickets – the same bottom line for the airline as one in four tickets being 100 per cent off – customers would be much more likely to jump at the chance of randomly winning entirely free airfare, thus boosting sales for Airline X through the form of a contest.

Anyhow, these aren’t just principles because they’re heavily studied ideals, but still, that’s behavioural economics in a nutshell: finding ways businesses can better target customers by capitalizing on the way they think, consciously or subconsciously.

*Bing: How to know when a deal is a good one

In practice, many industries use behavioural economics today, perhaps none more so than restaurants.

Think restaurants don’t trick you, so to speak, to spend more? Here are a few examples of how they do, courtesy Bankrate.com:

1) No dollar signs: Ever notice how fancy restaurants just put numbers next to their dishes, not numbers with dollar signs? “Dollar signs remind people of money,” one restaurant source tells Bankrate. “If you take (the dollar signs) off, it softens the pricing.”

2) Elaborate dish descriptions: Restaurants like to get long-winded when describing their meals, though this isn’t just to blow smoke their own way. By exhaustively cataloguing all the fresh ingredients in a dish, restaurants are subtly convincing you that, hey, maybe with all that I should be paying $16 for a salad.

3) Anchoring: Anchoring is where restaurants offer up one absurd price so as to prepare you to pay a not-as-absurd, lesser-of-two-evils price. So, maybe you’re not spending $75 on a filet mignon, but after seeing that, all of a sudden the $49.99 sirloin starts to sound like a deal.

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...