This morning’s New York Times reported on the breach of a new price-point in restaurants: the $40 entree. As a parent with three kids at home, I read stories of this sort for the same reason that I read National Geographic when I was a kid: to learn about exotic locations that I am not likely to visit anytime soon.
For me, the interesting point of the story is the framing effect of the $40 entree: putting a $40 entree on the menu makes it much easier for diners to order the $35 entree and that pushes up average checks. A restaurant won’t necessarily sell much of its highest price item, but that isn’t the point, if diners are perfectly comfortable ordering the second or third most expensive item on the menu, but will decline to order the most expensive item. Standard economics says that the existence of a choice that you would reject anyhow shouldn’t influence choices that you actually make, but the evidence on framing suggests that is wrong. (If you are looking for more on this, read Barry Schwartz’s The Paradox of Choice.)