Daily Archives: May 24, 2005

How to order food in a restaurant

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When you’re out to eat with friends and family, it can be challenging to decide what to order off the menu. There are often too many choices on the menu, everything sounds good, nothing sounds good, you’re unfamiliar with a particular type of cuisine, you’d like have what that woman over there is having but you don’t know what that is, etc. etc.

Luckily, a group of authors has recently released a series of pop science books focused on solving this particular problem. Here are some lessons on ordering food from those books:

Blink by Malcolm Gladwell
Glance quickly at the menu and order whatever catches your eye first. Spend no more than 2-3 seconds deciding or the quality of your choice (and your meal) will decline.

Freakonomics by Steven Levitt and Stephen J. Dubner
The key to ordering a good meal in a restaurant is understanding the economic incentives involved. Ask the server what they recommend and order something else…they are probably trying to get you to order something with a high profit margin or a dish that the restaurant needs to get rid of before the chicken goes bad or something. Never order the second least expensive bottle of wine; it’s typically the one with the highest mark-up on the list (i.e. the worst deal).

The Paradox of Choice by Barry Schwartz
Take the menu and rip it into 4 or 5 pieces. Order from only one of the pieces, ignoring the choices on the rest of the menu. You will be happier with your meal.

The Wisdom of Crowds by James Surowiecki
Poll the other patrons at the restaurant about what they’re having and order the most popular choices for yourself.

Everything Bad is Good for You by Steven Johnson
Order anything made with lots of butter, sugar, etc. Avoid salad or anything organic. A meal of all desserts may be appropriate. Or see if you can get the chef to make you a special dish like foie gras and bacon covered with butterscotch and hot fudge. Ideally, you will have brought a Super Sized McDonald’s Double Quarter Pounder with Cheese Meal into the restaurant with you. Smoke and drink liberally.

 

Observing Unobservables

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“Observing Unobservables: Identifying Information Asymmetries
with a Consumer Credit Field Experiment”
DEAN S. KARLAN
Princeton University, Yale University, Economic Growth Center
JONATHAN ZINMAN
Federal Reserve Bank of New York
http://papers.ssrn.com/paper.taf?abstract_id=725563

ABSTRACT:
Information asymmetries are important in theory but difficult to
identify in practice. We estimate the empirical importance of
adverse selection and moral hazard in a consumer credit market
using a new field experiment methodology. We randomized 58,000
direct mail offers issued by a major South African lender along
three dimensions: 1) the initial “offer interest rate” appearing
on direct mail solicitations; 2) a “contract interest rate”
equal to or less than the offer interest rate and revealed to
the over 4,000 borrowers who agreed to the initial offer rate;
and 3) a dynamic repayment incentive that extends preferential
pricing on future loans to borrowers who remain in good
standing. These three randomizations, combined with complete
knowledge of the Lender’s information set, permit identification
of specific types of private information problems. Specifically,
our setup distinguishes adverse selection from moral hazard
effects on repayment, and thereby generates unique evidence on
the existence and magnitudes of specific credit market failures.
We find evidence of both adverse selection (among women) and
moral hazard (predominantly among men), and the findings suggest
that about 20% of default is due to asymmetric information
problems. This helps explain the prevalence of credit
constraints even in a market that specializes in financing
high-risk borrowers at very high rates.

JEL Classification: C9, D8, G2, G3, O1