Economist's Notebook: A Night in the Pilsner Room

What does an economist think about when he is enjoying some of the world's best beers in the company of good friends and the Red Sox on TV?  Here is a sample:

The server waiting on our table nearly left us mid-order to rush over to a table of businessmen who had just sat down.  Incentives matter: the likelihood that their tab would be substantially larger than ours was very high and it is therefore clear to me where she should expend the most effort.  Though Jeff and I hypothesized that we would tip a higher percentage - this based on our experience from running a espresso cart in the cafeteria of Good Sam hospital where it was the nurses who always tipped well while the doctors did not.

This led to my second observation about one of the great paradoxes in economics: why do people tip after they have finished a meal in a restaurant they do not frequent?  Economics struggles to explain such behavior.  It does not seem rationally self-interested.  Economists are forced to try and explain in the uncomfortable territory (for some) of social norms, psychic costs, etc.  But we know that in experimental situations the rational, purely self-interested behavior often fails to materialize.  Does this invalidate the very core of economic theory?  No, it just means that we haven't properly characterized the utility function correctly.  The danger, of course, is that by invoking such other motivations, we get uncomfortably close to tautology.  But it is only tautological if we resort to saying: people do whatever makes them happy.  It is not a tautology to say people care about other people's utility in their own.  This is refutable and testable.

On this note, I consider myself a well-trained economist, so what then to make of my reaction to the realization that the Pilsner Room has a 1/2 pound cheeseburger with fries on the happy hour menu for $1.95 (which must be the best deal in Portland)?  I wasn't particularly hungry, I try not to indulge too much in food that is terrible for me and, until I noticed the burger, was going to do the hummus plate for $1.95.  Now sure, the consumer surplus available to me from paying $1.95 for a 1/2 lb. cheeseburger was quite large.  But I wasn't hungry and yet the very idea that I could get a burger for such a low price not only made me want it more, but also reduced the pleasure I would have received from the hummus plate.  It all goes to show either that, one, I am not as good an economist as I think; or two, that relative comparisons matter.  This is an old idea in economics, that new Honda might make you giddy with delight until the neighbor comes home with an Acura, and suddenly your are not quite as giddy.

I had the burger.  It was great.

And now I think I understand why I don't get many dinner invitations...