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The fixed price paradox: Conflicting effects of “all-you-can-eat” pricing

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 The Fixed Price Paradox:
Conflicting Effects of “All-You-Can-Eat” Pricing

David R. Just
Cornell University

Brian Wansink *
Cornell University

June 9, 2008

*
David R. Just is Associate Professor of Applied Economics and Management also at Cornell University
254 Warren Hall, Ithaca NY 14853-7801 607-255-2086 (drj3@Cornell.edu). Brian Wansink is the John S.
Dyson Professor of Marketing and of Nutritional Science in the Applied Economics and Management
Department of Cornell University, 110 Warren Hall, Ithaca NY 14853-7801, 607-255-5024
(Wansink@Cornell.edu). The authors thank Karla Monke and Anna Davidowitz for help with data
collection and Joost Pennings and James D. Hess for earlier conversations.

1
 The Fixed Price Paradox:
Conflicting Effects of “All-You-Can-Eat” Pricing

ABSTRACT

Does the fixed price a person pays for an unlimited service, such as an all-you-can-eat buffet,
influence how much is consumed and the perceived quality of the experience? We show that
when a person’s choice is conditioned on them selecting a fixed price plan, their desire to get a
“good deal,” can lead them to eat more and possibly enjoy it less. A study is reported in which
decreasing the fixed price of a zero marginal cost good also decreased its consumption.
Specifically, when the price of an all-you-can-eat pizza restaurant was discounted by 50%,
customers who were randomly given the discount ate fewer pieces of pizza (2.95 vs. 4.09) than
those who had not been given the discount. Price level should have no impact on how much of
an unlimited resource is consumed or on one’s perceived quality of the pizza. Thus we provide
evidence of the sunk cost fallacy in a food consumption context.

2
It is conventionally believed that aggregate consumption varies negatively with price increases.

In unlimited use contexts -- such as all-you-can-eat buffets -- the commonly employed notion of

utility suggests that once a purchase has been made, consumption should not vary with price.

Declining marginal utility, under such a regime, should lead the consumer to the point where the

experience no longer brings enjoyment or utility. Hence, one should eat until their utility of

consumption is maximized, and then stop.

Alternatively, the behavioral notion of the sunk cost fallacy suggests that an individual’s

consumption volume may instead vary positively with price. What may partially motivate

consumption in these instances is a desire to “get one’s money’s worth.” This is the basic notion

that individuals amortize the fixed cost of the experience (product or service) over as many

occasions or as much volume as possible. In this way, the price per experience – be it a piece of

pizza or a round of golf – can be reduced to the point where the individual feels they did not pay

too much on average.

This research investigates the key question: How does pricing influence consumption in a

fixed price context? Knowing this will help extend recent work examining consumer choice

between nonlinearity of pricing plans by focusing on the condition where consumption is

conditional upon choosing a fixed price plan. We examine the impact of fixed pricing in the

context of an all-you-can-eat (AYCE) buffet. Because of the growing number of both obese

individuals and fixed price restaurants in the United States, this issue is of acute interest and may

help answer questions regarding whether new marketing techniques are contributing to the

obesity problem.

3
 Following a discussion of the economic literature regarding fixed pricing and the

conflicting nature of utilitarian versus hedonic motivations in fixed price contexts, a basic model

is proposed. A simple experiment in an AYCE pizza restaurant confirms the sunk cost fallacy.

We find that individuals are significantly motivated by a desire to get their money’s worth. This

is evidenced by increase consumption of pizza when the cost of the buffet is higher. Implications

for policy makers and managers are discussed.

I. Background: Fixed Pricing in Practice

Fixed pricing is common in many service contexts, including those involving season passes (or

even day passes) to amenities such as golf courses, gyms, subways, and amusement parks. This

pricing method involves a one-price option that provides the consumer with access to the good

with zero marginal cost to increased levels of consumption. This type of pricing has many

appealing features to it, such as savings in transaction costs for both consumers and managers

(Nahata, Ostaszewski, and Sahoo 1999). 1 Within this section we discuss the recent literature

examining fixed pricing, and the conflicting utilitarian motivation and hedonic motivation this

pricing elicits.

Throughout this paper we consider AYCE as a specific example of fixed pricing. This

form of fixed pricing has particular policy relevance. AYCE pricing is pervasive in hotel

restaurants, college dining halls, social events and in many restaurants. What started with

California salad bars in the 1970’s (Auchmutey 2002) has lead to a 7% annual increase in the

prevalence and popularity of AYCE buffets and one-price restaurants in the United States

(Nation’s Restaurant News 2001). Yet this is not simply an American phenomenon – one recent

twist can be found in the “pay-by-the-minute” restaurants in Tokyo and Taipei. These AYCE

1
It is easy to see the appeal of such pricing to a manager or service provider. The key trade-off is between
extra product costs versus the potentially higher revenue and savings in transaction costs.

4
buffets provide a greater ability to maximize hedonic (taste) utility for diners by offering greater

selection, flexibility, and portion control compared to standard menu restaurants (Peregrin 2001).

Recent studies suggest that AYCE can contribute substantially to weight gain. For example,

Levitsky, Halbmaier and Mrdjenovic (2004) report that eating at an AYCE dining hall accounted

for 20% of college freshmen weight gain. In an obesigenic environment, where 72% of all

Americans are overweight (Wolf and Colditz 1998; Allison et al. 1999) our study contributes to a

major national policy debate by examining how consumers respond to pricing and quality

decisions in an AYCE environment – and hence how profit motives may interact with decisions

to overeat.

A. Motivations for Fixed Pricing

From the firm’s point of view, several possible motivations for offering fixed price plans have

been suggested in the literature. Potential motivations include both rational and behavioral

models. Rational motivations for fixed pricing plans include increasing sellers profits by

exploiting an ability to price discriminate (e.g., Miravete and Roller 2003; Sundararajan 2004),

or the results of competitive pricing pressures for goods with zero marginal cost (Fishburn,

Odlyzko and Siders 1997). Under these motivations, consumers simply choose fixed pricing

plans because they result in a lower cost for the services they employ.

Behavioral motivations for consumers and firms to choose fixed pricing plans fall

generally under the heading of behavioral industrial organization. For a complete summary of

this literature, we refer the reader to Ellison (2006), who highlights the general theme of rational

firms exploiting irrational consumers through alternative pricing schemes. Della Vigna and

Malmendier (2004) examine how self control issues and delayed costs or benefits can affect

firm pricing strategies. In particular, firms can design pricing structures to take advantage of

consumer misperceptions regarding future use of a good. For example, a good that provides

5
immediate benefits and future costs (e.g., credit card debt) will be priced to inflate future

payments on debt. An individual who believes that they will exercise greater fiscal constraint in

the future will anticipate a lower price for their debt than will actually be realized, and consume

more. Alternatively, goods that provide immediate costs and future benefits (e.g., gym

participation) will be priced to reduce per use payments and increase up front payments.

Lambrecht and Skiera (2006) provide a comprehensive review of behavioral studies

examining fixed price versus pay as you go options. Behavioral motivations for consumers’

choosing a fixed price plan include consumer ignorance or inexperience (Miravete 2003), or a

consumer’s inability to determine the lowest price option given their propensity for use (Della

Vigna and Malmendier 2006), insurance (Miravete 2002), that consumers simply enjoy flat rate

pricing more than piece rate pricing (Prelec and Loewenstein 1998), inconvenience associated

with choosing the correct plan (Winer 2005). Our study falls squarely under the behavioral

model of fixed price consumption. However, we focus only on consumption behavior given

fixed prices rather than the selection between fixed and unit rate plans.

Although fixed pricing (versus ala cart or menu pricing) appeals to many segments of

consumers (Nunes 2000), consumers may not always “get their money’s worth.” As many

experience with cellular phone plans, fixed pricing can often result in people under-consuming to

the point where consumers would have been better off purchasing via a traditional pay by the

minute plan (Miravete, 2003). Miravete finds that those choosing flat rate pricing plans tend to

be those that place heavier call volume. Consumers appear to respond correctly to the monetary

incentives despite total cost differences that are relatively small (less than $5 per month on

average). This stands in stark contrast to the behavior reported by Della Vigna and Malmendier

(2006), who find that individuals routinely choose flat fee gym memberships when it would be

cheaper to pay for short term use. In this case, individuals’ behavioral response results in an

6
average loss of $600. Hence, there appears to be some evidence that individuals fail to fully

assess their options when selecting into flat fee pricing.

B. Hedonic versus Transaction Utility

The results of Della Vigna and Malmendier (2006) seem all the more astounding if we believe in

the “get your money’s worth” notion popularized by Thaler (2004) as transaction utility. Thaler

decomposes the utility from a purchase into acquisition utility and transaction utility. Acquisition

utility is determined by the excess value of the good to the consumer minus the value of the

money used in acquiring the good. Transaction utility is the notion that individuals derive some

utility from obtaining a good deal on the item. Thaler notes that this is context dependent,

providing an example from a survey eliciting consumer willingness to pay for beverages. In the

hypothetical situation, a friend was to purchase their favorite beer for the respondent and deliver

it to them on the beach. Those asked their willingness to pay if the friend was going to purchase

it at a hotel resort were willing to pay substantially more than those who were told the friend

would purchase it at a run-down grocery store. Thaler suggests that individuals compare the

price of an object to a reference price for that context. Thus, individuals are not willing to pay as

much for a beverage in a context where they believe it would naturally be cheaper (e.g., in a run

down store).

More importantly for this study, Thaler’s notion of transaction utility suggests consumers

feel better off when they have paid a low average price for the goods consumed. This has

interesting implications for fixed price contexts. In this case, we should see that people vary how

much they use the gym based on the price they paid. Because consumers realize that per unit

cost drops linearly with consumption quantity, they may believe that consuming more becomes a

better bargain (compared to a variable price good). After one has paid for a gym membership, or

an AYCE pizza buffet, the only way transaction utility can be increased is by increasing one’s

7
consumption of the good. Such an effect should increase the number of visits by those paying for

a full gym membership. The impact of perceived unit cost on consumption is well documented.

For example, Wansink (1996) finds the per unit cost of product influences consumption given

package size. 2

An interesting issue arises when increases in transactional utility conflict with one’s

distaste for a food or the limits on one’s enjoyment from visiting the gym. In the traditional

economic model of consumption, an individual’s marginal utility from consumption declines as

one consumes more. Consider Figure 1, which illustrates a traditional utility of consumption

function, with utility on the vertical axis and consumption quantity on the horizontal axis. We

will refer to this as hedonic utility – which considers enjoyment from consumption apart from

transaction utility. The hedonic utility has a distinct optimum at x*. If we consider this to

represent the consumption of a food, consuming too little may leave the consumer uncomfortably

hungry or at least desiring more. If they consume too much, the consumer may be

uncomfortably full, or simply develop a distaste for the food.

If the consumer has paid a fixed price for consumption, a desire for transaction utility

may increase consumption. If this pressure to consume more is strong enough, it may lead the

consumer to eat more than they want in terms of hedonic utility alone, placing them on the

downward sloping portion of the utility curve. Satiation and “burnout” can limit incremental

enjoyment (Inman 2001).

[Insert Figure 1]

2
This research underscores the importance of controlling for variables such as package sizes when one
examines the impact of taste on consumption. However, while package sizes stimulated increased
consumption by 49% and 60% for relatively favorable and unfavorable foods, these results should be
considered suggestive, not conclusive. One reason we might see seemingly greater increases among
relatively unfavorably tasting products is because there is a ceiling of how much a person can eat, and it
may be that people eating favorable-tasting popcorn reach that ceiling more quickly and with smaller
containers. Furthermore, the lack of a direct taste manipulation and other possible confounds between
variables such as taste and mood states may limit the generalizability of these results.

8
 Herein lies the consumer dilemma. Transaction utility motivations exist because

the per unit cost decreases linearly with consumption, yet this is in conflict with hedonic

motivations. Decreasing marginal utility holds that sensory ratings decrease with

consumption, leaving a decreasing hedonic marginal utility to consumption. 3

C. Testing for The Sunk Cost Fallacy

In his landmark article incorporating behavioral phenomena into models of consumer choice,

Thaler (1980) cites anecdotal evidence for the sunk cost fallacy. According to the sunk cost

fallacy, individuals consider their cost history as well as incremental costs and benefits when

making decisions. 4 Consistent with this, Arkes and Blumer (1985) conducted an experiment

randomly offering theater goers different prices for season ticket packages. They found that those

paying more for the tickets attended significantly more plays within the first half of the season,

but about the same number within the second season.

We suggest that finding correlations between price and consumption is a weak test of the

sunk cost fallacy. Rather the sunk cost fallacy requires that (i) some amount of money be paid up

front, (ii) the object of marginal consumption becomes undesirable and (iii) the individual

continues to consume trying to recover the sunk costs. If the marginal net benefit from continued

consumption does not become negative, then we should expect no correlation between fixed

expense and consumption. If we find little correlation between fixed price and consumption, this

would not negate the sunk cost fallacy as it may simply mean that all individuals faced positive

3
In a prestudy, 16 college students were asked to eat 77 square inches of pizza that had been cut into 10
square pieces. After each piece of pizza, they were asked to rate the taste of the pizza on a 0-100 scale. On
average, after the 4th piece of pizza, ratings dropped at the average rate of 3.4 points (P<.01).
4
Near the end of the section describing this phenomenon Thaler inserts an important footnote that contains
nearly all of the evidence for the sunk-cost fallacy (Thaler, 1980, p. 48):I also plan some experiments to test the sunk
cost effect. In one pilot study undertaken by one of my students, Lewis Broad, customers at an AYCE pizza
restaurant were randomly given free lunches. They, in fact, ate less than the control group who paid the $2.50
normal bill.

9
net benefits for the consumption of that good (for example with a single use good). In this case

all who have positive net benefit should continue to consume. Further, finding correlation

between price paid and consumption could happen for two different reasons: (i) Individuals base

consumption on price paid – trying to recover the sunk cost through consumption even if net

benefits have turned negative, or (ii) the individual’s preferences for the marginal consumption

of the item (irrespective of their desire to get their money’s worth) is affected by the fixed price.

For example, if paying a higher price lead one to enjoy the taste of a slice of pizza more, then the

individual may increase consumption as a natural result.

We examine behavior in an AYCE pizza restaurant with consumption price randomized.

However, we additionally take measures of individual assessment of the taste of the pizza

consumed. This allows us a more powerful test of the sunk cost fallacy, and greater insight into

how such a mechanism may work.

II. Theory

The consumer is motivated by both a desire to get a “good deal” (transaction utility) and

to increase their hedonic utility (Thaler 2004). At any point during a meal a consumer

can re-evaluate their transaction and consumption utility, yet over the course of the eating

process we suppose the consumer maximizes the utility of hedonic consumption and the

transaction. Specifically, let the consumer who has already paid for an AYCE buffet

solve

(1) max U t ( q | p ) + U c ( q | θ ) ,
q

where q is the quantity consumed, p is the fixed price, θ is the amount that maximizes

consumption utility, U t ( ⋅ | ⋅) is transaction utility of consuming q given the price paid,

10
p , and U c ( ⋅ | ⋅) is the hedonic consumption utility of quantity consumed given the

quantity that optimizes hedonic utility, assuming continuous differentiability of both

utility functions and that U qt > 0 , U qq

t
< 0 , U tp < 0 , U qc (θ | θ ) = 0 , U qqc ( ⋅ | θ ) < 0 .

t
Thaler’s notion of transaction utility requires that U qp > 0 , or, that the marginal

transaction utility of consumption increases with price. This model supposes that

transaction utility and hedonic consumption utility are compensatory. In other words, one

who pays very little for poor quality pizza may be similarly well off as if they had paid a

lot for a similar quantity of very high quality pizza.

The first order conditions that solve (1) can be written as

(2) U qt ( q* | p ) + U qc ( q* | θ ) = 0 ,

By monotonicity of U t , the first term in (2) must be positive, so U qc ( q | θ ) < 0 . Thus, the

marginal hedonic consumption utility is negative on average at the optimal consumption

level, reflecting that the consumer will over-eat (relative to hedonic consumption utility)

in order to increase transaction utility. This will always be the case if U qt (θ | p ) > 0 .

Moreover, totally differentiating (2) with respect to p and q results in

dq U qpt
( q* | p )
(3) =− t ,
dp U qq ( q* | p ) + U qqc ( q* | θ )

t
which is positive if U qp > 0 . In other words, if increasing the price also increases the

marginal benefit of consumption in terms of transaction utility, then increasing the fixed

price must increase consumption. Thus the higher the price, the more the individual will

eat.

11
 It is of interest to know if the price paid may directly influence the evaluation of

the food. One alternative hypothesis that might explain why consumption in an AYCE

context might depend on price is that price may directly affect hedonic utility. Suppose,

for example, a higher fixed price leads the individual to take more or less pleasure in the

taste. In this case price should influence consumption even if the individual does not

consider transaction utility when they consume.

Suppose, from (1) that hedonic optimum is a function of price, θ ( p ) . In this case,

reported enjoyment of the pizza should depend on the price paid. Price could influence

hedonic utility through two possible mechanisms. First, individuals may take price as a

suggestive signal of quality, and may thus believe that the pizza is better quality when

they have paid more for it. In this case, θ p > 0 , leading the individual to consume more

when higher prices are charged. This behavior would be identical to that caused by the

transaction utility effect, but has a very different cause. Thus, it is important to

differentiate whether price is affecting hedonic pleasure, or simply altering efforts to

recover cost.

Alternatively, individuals may set taste expectations according to price, and

evaluate taste in comparison to the price paid. In this case, we would expect θ p < 0 ,

leading those who face higher prices to give poorer evaluations of the food. If this is the

case, a positive relationship between price and consumption is certainly due to the

transaction utility effect.

Using the AYCE context of a pizza buffet, we want to examine whether the fixed

price a person pays for their buffet influences how much they eat, and how much they

enjoy what they eat. We hypothesize that the amount of food a person will eat is

12
positively correlated with how much they paid for the food. Thus those who pay more

will eat more. Further, we hypothesize that price will impact taste evaluations negatively,

supporting the notion of transaction utility as the motivation for greater consumption

when higher prices are paid.

Consumption is a process that involves numerous decisions about how much to

take, what sequence to eat and drink the food, and when to stop. One set of studies

estimates the number of these decisions to range from 200-300 each day (Wansink and

Sobal 2007). One way the nutrition literature has tried to capture this continuous process

is by studying ad labium feeding. One factor that sets this study apart is its investigation

of the trade-off between price and the real-time consumption of a hedonic food. Another

distinguishing factor is the real-world context where this occurs.

III. Methods

To conduct this research, it was necessary to find an all-you-could-eat restaurant where

consumption volume could be unobtrusively measured and where the type (and calorie content)

of food could be reasonably controlled in order to provide accurate comparisons across

individuals and between conditions. 5 Because pizza can be discretely measured by the piece if

uniformly cut, one field context which met these criteria was an AYCE pizza restaurant.

Cooperation to conduct such a study was given by the Pizza Garden, an AYCE pizza

restaurant one mile south of Champaign, Illinois. The restaurant had an exclusive AYCE pizza

buffet that it served Monday through Friday during lunch hours, and an optional buffet or menu

service it provided on evenings and weekends. The study was conducted during the exclusive

lunch buffet hours on a Tuesday, Wednesday, and Thursday in early April 2005. The between-
5
For a complete discussion of the use of economic experiments in and out of the laboratory see Levitt and
List (2006).

13
subjects randomized block design involved a control group who bought the regular price pizza

buffet ($5.98) and the treatment group who were given a coupon for 50% off this regular price

($2.99). There was concern that it would not legally be possible to manipulate the total price of

the meals. The restaurant did allow us to manipulate the price people ultimately paid by offering

a discount for half the participants.

When approaching the restaurant door, participants were approached by one of four

experimenters and asked if they would be willing to answer a couple questions related to the

restaurant. In exchange for their cooperation, the groups of participants who had been randomly

assigned to the treatment condition were given coupons for 50% off each of their buffets (along

with coupons for free soft drinks). Those groups of participants in the control condition were

simply given coupons for free soft drinks. No group was told what they would receive in

exchange for their participation until after they agreed to participate.

People who were approached in groups (such as those who arrived in the same car) were

all assigned to the same condition. Groups were approached in alternating order regardless of

their size. That is, the first group was offered the discounted coupon and drink, while the second

group was offered only the drink. It was important to alternate the treatments between groups in

order to control for different effects that might otherwise be attributed to differences in the time

of day or the day itself (such as Tuesday versus Wednesday). The data was collected from 11:30

to 1:30, and the weather was sunny and warm during all three days.

Of the 20 groups of people (79 individuals) who were approached, all but four groups (13

people) participated. Three groups declining to participate included, three emergency medical

technicians, four men dressed in suits, and a male and female couple. No record was made as to

which group they would have been assigned had they agreed to be involved in the study. Another

group consisting of four police officers agreed to participate in the study, but were called away

14
after entering the restaurant and before being seated. Thus, of the 70 people who originally

agreed to be in the study, complete data was collected from 66. For the purposes of this paper

we treat them as refusing the study. Of those approached (both those participating and those

refusing) all but the one group of four that were called away, ordered the pizza buffet (95%).

Because the pizza buffet was the only non-drink menu item available at the time, and participants

were selected only once their intent to enter the restaurant was clear, we believe that all had the

intention to purchase the buffet prior to our approach.

It is important to underscore that the pizza restaurant exclusively served the pizza buffet

during lunch times when the experiment was administered. No menu was provided to order ala

cart. People who had selected to eat at this restaurant would have predetermined to eat the

buffet. Indeed, no individuals included in either treatment failed to purchase the pizza buffet or

decided not to eat pizza.

After providing informed consent, people were asked two restaurant-selection questions

which were intended to distract them from the true purpose of the study: (1) “What other places

did you consider for lunch?” and (2) “Why did you choose this restaurant?” They were then

thanked and last asked if they would mind answering a short series of questions when they

finished their meal in return for a coupon. All agreed. We then gave them a coupon depending

on the treatment they had been assigned to.

While in the restaurant, pizza consumption was measured by three assistants who served

as hostesses. These assistants were blind to the purpose of the study and had no knowledge of

which patrons had been randomly assigned to which conditions. They noted how many pieces of

pizza each person brought back from the buffet table and how much was left uneaten after they

completed their meal. Because these hostesses were continually responsible for busing tables,

this was possible to do without raising suspicion. Uneaten pizza was weighed in a back room to

15
more accurately assess what percentage of the pizza taken was actually eaten. Thus, the amount

of pizza consumed was recorded as a continuous variable in terms of fractional number of slices.

A wide variety of pizza was served (8 pieces/pizza), and an analysis by a dietician indicated that

the average piece contained 358 calories and 13 grams of fat. Because of difficulty in precisely

identifying the types of residual pizza remaining, averages were used to calculate caloric and fat

intake for this analysis.

Following their meal, participants were intercepted as they paid at the cash register, and

each was given a short questionnaire which asked for demographic information along with a

variety of questions as to how much they believed they ate, and their attitude toward the pizza.

Other than questions involving numerical estimates, most questions asked their agreement with a

number of statements on 9-point scales (1=“strongly disagree”; 9 = “strongly agree”).

IV. Results and Discussion

Because the general consumption amounts may differ based on gender, age, height, and how

many people a person is dining with, we used two different tools to include these socio-

demographic variables when comparing consumption and the evaluation of the food within and

across treatments. Consistent with a review of other field studies related to food intake

(Wansink 2004), we find that these demographic variables appear to only shift the mean of

consumption.

When comparing those receiving the 50% discount to those who paid full price, we

make use of the matching techniques for evaluating treatment effects developed by Abadie,

Drukker, Herr and Imbens (2001). This technique uses minimum distance measures to match

observations from both treatments based on socio-demographic variables. Specifically, we

control for gender, age, height, and the number of individuals eating in the group. We will refer

to these factors as the socio-demographic factors.

16
 It has been shown that the number of people eating in a group can significantly affect

the amount of food eaten (DeCastro 2000). In each of our regression analyses, we include group

as a linear variable. In accordance with DeCastro (2000), consumption is expected to be a non-

linear increasing function of group size. However, with groups ranging in size only from 1 to 7,

there is not sufficient variation, particularly in larger groups, to allow precise estimation of

more sophisticated relationships. This should be less of a problem in comparisons using

minimum distance matching estimation. Table 1 presents summary statistics for each of the

consumption and socio-demographic variables as well as the taste and quality evaluations.

[Insert Table 1]

A. The Transaction Utility Effect

As predicted, people who paid the regular price for the pizza buffet tended to eat more pizza

(4.09 slices versus 2.94; F(1,64) = 6.52, p-value = 0.013). Figure 2 displays the average

consumption and taste ratings by treatment. A permutation test of the difference in mean

consumption results in an exact p-value of 0.006 with 10000 replications. Table 2 contains the

estimated treatment effects for several outcome variables controlling for socio-demographic

variables using the minimum distance matching estimator. We find that the 50% discount

decreases consumption by about one slice of pizza (significant at the 0.01 level). Thus, we find

evidence that increasing the price also increases the consumption of pizza. On average, each

person paying the full price ate 1.145 more slices, representing an increase of 27.9%. This

translated into an increased consumption of 365 calories (1110 vs. 1468) and 13.3 grams of fat

(40.3 vs. 53.3).

[Insert Table 2 and Figure 2]

17
 Table 3 displays the impact of the coupon on consumption estimated using standard

Tobit estimation. The results remain the same when controls for socio-demographic variables

are included, as well as when the date of participation is included. In each of these regressions,

in the matching treatment effect estimation and in the uncontrolled summary statistics, paying

half price reduces consumption by about one slice of pizza on average, or about one quarter of

total consumption. Thus we see robust evidence that price paid has is positively correlated with

consumption of pizza in an AYCE setting.

[Insert Table 3]

Both groups of consumers were reasonably accurate in estimating how much pizza they

had eaten. The average difference between our exact measures and their recall was 0.05 and

0.08 slices of pizza for the half price and full price treatments respectively. Although it is

generally thought that people have a tendency to mindlessly overeat in these buffet situations,

this suggests that they are generally aware of how much they eat when the item can be

discretely measured as it can with the number of pizza slices consumed. This raises the

question of whether participants eating at a regular price buffet may have knowingly eaten

additional pizza. This should be the subject of future research.

Although the amount of wasted food was sizable with all consumers, plate waste

doubled in the regular price buffet condition (from .22 to .43 pieces; F=2.09; p=0.15). This

difference becomes significant when controlling for socio-demographic variables (effect of

0.326 pieces left, p=0.049, see Table 2). When paying half-price for a buffet, 19% left food on

their plate, but this increased to 37% when they were paying full price. Many consider the crust

of the pizza to be inferior. Hence, those paying more may have attempted to consume more of

the parts of the pizza they enjoy most by reducing consumption of the crust. Informal

observation of participants suggests that this is the case.

18
B. Price and Taste

An alternative test of the transaction utility hypothesis requires us to determine whether the

price paid had any impact on the evaluation of taste. If paying more impacts the taste of the

pizza positively, then the positive relationship between price and consumption may be due to

increased evaluation of taste. If paying more impacts the taste negatively, we have further

support of the transaction utility model, and transaction utility will play an even larger role than

it might otherwise in determining consumption. Without controlling for socio-demographic

variables (see Table 1) we see that taste evaluations are on average higher when participants

paid less, but insignificantly so. When controlling for socio-demographic variables (see Table

2) lowering the price positively influences the taste of the first slice of pizza (p-value = 0.043)

and the overall taste rating (p-value = 0.096), and the effect is not significant for the last slice.

While the data do not overwhelmingly support a negative relation between price and taste

evaluations, they certainly refute the notion of a positive relationship. Thus, we find further

evidence of the transaction utility model.

C. Within Treatment Variation

To examine within group treatment effects (the effect of evaluation on consumption) we use

standard regression analysis since evaluations varied continuously. To examine the impact of

taste on consumption generally, we used Tobit 6 regression analysis, restricting analysis to those

who received the 50% discount. The results are displayed in Table 4. Interestingly, in each of

the regressions, taste is negatively associated with consumption, with the taste of the first slice

being the only significant variable (Model 2 and Model 6). It seems odd that the better the taste,

the less total pizza one ate. This same result was consistent across all people, with socio-

demographic factors having no interacting influence (Model 4).

6
The smallest amount consumed was one slice of pizza, with 7 consuming exactly one piece.

19
 [Insert Table 4]

Conducting similar analysis on the group not receiving the discount yields the same

sign, though a slightly smaller result (see Table 5). Additionally, when both treatments are

combined and a control is added for treatment, the taste of both the first and last slice of pizza

are significant and negative.

[Insert Table 5]

While this, admittedly weak, negative relationship between taste and consumption

seems perverse, perhaps it should not be unexpected. Intuitively, it takes a lot of bad pizza to

get one’s money’s worth relative to good pizza. Perhaps if pizza is of an inferior quality,

transaction utility plays a more significant role in determining the optimal stopping point,

producing a seemingly perverse result. Unfortunately, all taste measures were administered ex

post and may display significant bias. An alternative explanation for this result is that

individuals who ate more were simply uncomfortable and this feeling biased their assessment of

taste. Additional research will be needed to clarify this potentially new paradox.

V. Discussion

The sunk cost fallacy is one of the more frequently noted violations of rational behavior. Here

we present clear evidence that the fixed cost fallacy prevails in a transparent market setting that

many people have experienced. We draw attention to two important findings. First, our results

suggest that when paying more for a good, people will consume it at higher levels. The results of

our data actually suggest a possible causal relationship between price and hedonic consumption

utility and between hedonic consumption utility and consumption. Thus, those who pay more are

less capable of enjoying the food and may eat more because of it.

Insofar as hedonic satiation occurs prior to the point where consumption stops, a resulting

decrease in one’s evaluation of the food could simply represent the diminished marginal utility.

20
That is, instead of rating the peak level of quality, one may tend to overweigh the most recent

consumption experience when evaluating the overall taste or quality of the food. This is the

phenomenon described and documented by Kahneman, Wakker and Sarin (1997) in their

exploration of the meaning of utility. We find support for this notion as the rating of the initial

consumption appears to have much more to do with consumption decisions than the rating of the

final consumption.

Many individuals believed they had eaten too much upon leaving the restaurant (e.g.,

48.6% of those paying full price vs. 41.9% of those paying half price, insignificant). Those who

were charged more were more likely to eat more. The ex post evaluation by nearly half of

participants that they had eaten too much suggests that individuals appear to use systematically

different mechanisms to evaluate the optimal stopping point while they eat rather than after they

have eaten. Oddly, while we find that those in the higher priced treatment ate substantially more

pizza, they were not significantly more likely to admit to having overeaten. This may suggest

that individuals consider transaction utility after having eaten as well as when deciding how

much to eat and thus are just as likely to believe they have overeaten.

A. Managerial and Policy Implications

As Hahata et al (1999) noted, the key trade-off in offering fixed price consumption

opportunities involves the potentially higher revenue and savings in transaction costs versus the

extra production cost. When the transaction cost is relatively high, and the market size is large,

the trade-off can make buffet pricing a more profitable pricing strategy than a two-part tariff.

The additional trade-off that has to be considered, however, is the reflection on perceived quality

and repatronage.

Instead of thinking only in terms of value and perhaps traditionally-defined utility, this

research examines how the utilitarian notion of value can be combined with the hedonic notion.

21
One of the key concerns for consumers in the short-term and in the long-term is to better monitor

and control their consumption and intake of food. In the short-run, not doing so decreases how

much they will enjoy their food and the dining experience. In the long run, it can lead to

increased weight gain without the corresponding hedonic utility.

Although buffets provide more flexibility and arguably more portion control, they can

also produce over-consumption and regret. One reason people may regret eating at buffets is that

the more they overeat, the less they like the food. The higher the price of a buffet, the greater the

risk of over-consuming. We show that this can cause a nearly 30% increase in consumption.

This may entail greater consumption if we dislike the foods we are eating. The $10.00 Sunday

Breakfast Buffet is a greater danger to our waistlines than the $5.00 luncheon buffet.

B. Limitations and Future Research

In order to conduct this research, it was necessary to find an AYCE context which did not allow

other dining options. In this way, we could be guaranteed that the influence of pricing was

conditioned on the prior decision to eat at the buffet. One issue with this context would involve

the people who self-select themselves into it. It may be that the type of person who chooses to

go to an AYCE restaurant buffet is different in the way they perceive the value of food and any

related quantity-quality trade-off. If a different group of people – perhaps ones who are not

predisposed to frequenting buffets – were put in this situation, it is not known if the effect would

be as strong or whether it might even be stronger. For instance, people who choose an AYCE

restaurant may believe they have an ability to control themselves in this context.

Because of legal and public relations concerns, we did not directly manipulate the stated

price of the meals. We instead offered half-off discounts for the treatment group. It is worth

noting that price discounts may not always be perceived by consumers as equivalent to a lower

price (Anderson and Simester 1998; 2001). In such a case, behavior might be driven more by the

22
proportion of the discount than by the final price (Kahneman, Knetsch and Thaler 1991), and

such discounts may influence perceptions of quality. What works in favor of the results in this

study is that the discounted pizza was still rated as being of higher quality than the undiscounted

meals. Nevertheless, this effect might have been even stronger in a context where the price had

instead been lowered instead of discounted.

This study examined an ex-post evaluation of both the consumption stopping point and

taste evaluation. Ex post observations of stopping points may not fully capture the process

consumption decisions in a buffet context. Consumers ultimately make decisions after each

helping whether to return to the buffet line. Further, we must acknowledge that taste ratings

compiled ex post must be interpreted with care. Taste may also be negatively correlated with

consumption due to ex post assessment bias. For example, those consuming more may

experience some uncomfortability that affects their assessments. In this case it is unclear how

that bias would affect assessments of the first, last and overall slices differently. It would be

useful to add a time component to this evaluation process. For instance, the often mentioned

notion that our evaluation of satiety lags (some say up to 20 minutes) behind our actual satiety,

might suggest physiological cues might be compromising this evaluation over the course of a

meal. Future studies could measure this orientation, and model it as a part of utility.

VI. Conclusion

The general purpose of this article is to demonstrate the sunk cost fallacy in an AYCE context.

Our results suggest that in an AYCE setting, price positively influences consumption and

negatively influences evaluations of taste. Additionally, consumption appears to be negatively

related to taste within treatment. Each of these observations supports the notion that individuals

are driven somewhat by transaction utility – a desire to get a good deal – in a fixed price setting.

There are a number of ways in which utility can be conceptualized in these fixed price situations.

23
Several limitations apply to our results, as discussed in the previous section. We provide a

methodological benchmark for future investigations in this area of fixed price research as it

relates to a wide range of contexts, and introduce a seemingly new paradox—that of eating more

when one likes it less.

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 Table 1. How All-You-Can-Eat Buffets Influence Consumption and Satisfaction1
(Standard Deviations in Parentheses)

Labels Significance

Half-Price Regular Price F-test (1,64)

Buffet Buffet (p-value)
(n=31) (n=35)

Actual Consumption
- Actual number of pieces of pizza taken 3.16(2.08) 4.52(2.39) 5.97(0.02)
- Actual number pieces of pizza consumed 2.94(1.66) 4.09(1.95) 6.52(0.01)
- Average number of calories of pizza eaten 1054(594) 1464(698) 6.52(0.01)
- Plate waste (Actual taken less actual consumed) 0.22(0.53) 0.43(0.65) 2.09(0.15)

Perceived Consumption
- “How many pieces of pizza did you eat today?” 3.00(1.83) 4.17(2.02) 6.04(0.02)
- “How many calories of pizza do you think you ate? 716(668) 697(468) 0.01(0.90)
- “How many pieces does the typical person eat?” 3.94(1.40) 5.75(6.24) 2.50(0.12)

Taste Perceptions
- “The pizza, in general, tasted really great” 6.87(1.68) 6.26(1.52) 2.36(0.13)
- “The first piece of pizza I ate tasted really great” 7.10(1.47) 6.51(1.67) 2.24(0.14)
- “The last piece of pizza I ate tasted really great” 6.71(1.64) 6.49(1.56) 0.32(0.57)
- “The pizza is high quality” 6.16(1.75) 5.60(1.58) 1.88(0.18)

Other Potential Utility Measures

- “I am very satisfied with the quality of pizza I ate” 6.43(1.36) 6.00(1.21) 1.85(0.18)
- “I am very satisfied with the quantity of pizza I ate” 6.74(1.65) 6.45(1.66) 0.48(0.49)
- “I ate more pizza than I should have” 5.20(2.81) 5.14(2.84) 0.01(0.94)
- “I ate enough pizza to get my money’s worth” 7.10(1.97) 7.24(2.00) 0.09(0.77)

Socio-Demographics
- Age 34.03(12.74) 36.17(11.79) 0.50(0.48)
- Gender (percent male) 0.74(0.44) 0.85(0.36) 1.37(0.25)
- Height (meters) 1.76(0.16) 1.79(0.09) 1.44(0.23)
- Number in group 3.97(1.52) 4.43(1.67) 1.37(0.25)

1
All scaled questions are measured 1 = strongly disagree to 9 = strongly agree.

28
Table 2. The Effect of Paying Half Price Controlling for Socio-Demographic Variablesa

Outcome Variable Effect Z-Statistic P-Value

Number of Slices Eaten -1.145 -2.63 0.008***

Overall Taste Rating 0.727 1.67 0.096*

Taste Rating of First Slice 0.900 2.02 0.043**

Taste Rating of Last Slice 0.477 1.02 0.307

Plate Waste 0.326 0.166 0.049**

* P<0.10, **P<0.05

a. Results are derived using a minimum distance matching estimator (Abadie et al. 2001).

Matching is based on age, gender, height and number of members in the party.

29
Table 3. The Effect of Paying Half Price on Pizza Consumptiona
Variables Model 1 Model 2 Model 3
-1.209*** -1.039** -1.006**
Half Price
(0.489) (0.482) (0.490)
0.702 0.713
Gender --
(0.682) (0.682)
-0.032 -0.032
Age --
(0.021) (0.021)
2.974 3.054
Height --
(2.180) (2.189)
0.021 0.026
Group --
(0.154) (0.154)
0.056
Day 2 -- --
(0.609)
-0.178
Day 3 -- --
(0.571)
2.808*** -1.947 -2.061
Constant
(0.358) (3.562) (3.630)
Pseudo-R2 0.022 0.049 0.049
a. Consumption is measured continuously in slices consumed, calculated by

comparing total number of pizza slices taken minus the total plate waste divided

by the average weight of a slice of pizza. Estimates result from Tobit estimation

with a lower limit of 1 piece of pizza consumed.

30
 Table 4. The Effect of Taste on Pizza Consumption for those Receiving a 50%
Discounta (Standard Errors in Parentheses)

Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Overall
-0.160 -0.183
Taste -- -- -- -- --
(0.198) (0.206)
Rating

Taste
-0.457** -0.486**
Rating of -- -- -- -- --
(0.208) (0.212)
First
Slice

Taste
-0.289 -0.257
Rating of -- -- -- -- --
(0.203) (0.203)
Last Slice

0.830 0.897 0.984 0.883

Gender -- -- --
(0.897) (0.767) (0.815) (0.830)
-0.030 -0.023 -0.030 -0.030
Age -- -- --
(0.029) (0.027) (0.028) (0.029)
3.071 2.278 2.684 3.111
Height
(2.465) (2.264) (2.377) (2.418)
-0.069 0.012 -0.000 -0.092
Group -- -- --
(0.236) (0.22) (0.235) (0.231)
-0.804 2.109 0.307 1.945 4.101*** 6.275** 4.543***
Constant
(4.178) (4.006) (4.085) (3.883) (1.452) (1.531) (1.393)
Pseudo-
0.047 0.081 0.060 0.029 0.007 0.041 0.013
R2
a. Consumption is measured continuously in slices consumed, calculated by

comparing total number of pizza slices taken minus the total plate waste divided by

the average weight of a slice of pizza. Estimates result from Tobit estimation with a

lower limit of 1 piece of pizza consumed.

31
Table 5. The Effect of Taste on Pizza Consumption for those Receiving No Discount
and All Treatmentsa (Standard Errors in Parentheses)

No Discount All Treatments

Variables Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Overall
-0.298 -0.233
Taste -- -- -- --
(0.330) (0.150)
Rating

Taste
-0.426* -0.337**
Rating of -- -- -- --
(0.242) (0.147)
First
Slice

Taste
-0.136 -0.265*
Rating of -- -- -- --
(0.222) (0.150)
Last Slice

Half 0.901 0.949 0.898

-- -- --
Price (0.488) (0.466) (0.478)
0.330 0.510 0.413 0.602 0.792 0.667
Gender
(1.117) (1.085) (1.134) (0.702) (0.658) (0.665)
-0.034 -0.021 -0.041 -0.031 -0.025 -0.030
Age
(0.031) (0.032) (0.031) (0.021) (0.020) (0.020)
1.970 0.660 1.279 2.909 2.190 2.455
Height
(4.332) (4.270) (4.423) (2.170) (2.127) (2.150)
0.008 -0.005 0.055 -0.000 0.028 0.001
Group
(0.220) (0.211) (0.221) (0.153) (0.148) (0.150)
3.195 5.868 3.403 -0.103 1.347 0.880
Constant
(4.178) (7.660) (8.063) (3.722) (3.709) (3.822)
Pseudo-
0.035 0.045 0.027 0.056 0.068 0.060
R2
a. Consumption is measured continuously in slices consumed, calculated by

comparing total number of pizza slices taken minus the total plate waste divided

by the average weight of a slice of pizza. Estimates result from Tobit estimation

with a lower limit of 1 piece of pizza consumed.

32
Figure 1. The Impact of Consumption Quantity on Utility

33
 Figure 2. The Relation Between Consumption Quantity and Taste Perception

7.1
7 6.9
6.7 6.5 6.5
6.3 Number of Slices Consumed
6
Perceived Overall Taste of Pizza*
5
Perceived Taste of First Slice*
4.1
4
Perceived Taste of Last Slice*
3.1
3 *1=low; 9=high

0
Half Price Buffet Full Price Buffet

34

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