Planet Money - All you can eat economics

Episode Date: October 27, 2023

You might expect to find economic concepts in the pages of an economics textbook. But you know where you can really see a lot of economic concepts in action? Buffets.Here at Planet Money we believe there's a lot of economics going on at the all-you-eat buffet, tucked in between the mountains of brisket and troughs of mashed potatoes. From classic concepts like adverse selection, sunk costs, diminishing marginal returns, to more exotic economic mysteries, like the flat rate pricing bias.Today on the show, we're headed to the place where the modern buffet may have been born: Las Vegas. Our mission? To feast ourselves on all the economics we can handle at the all-you-can-eat buffet. And along the way, an economist and fellow buffet-lover will teach us his hyper-rational strategy for optimizing his buffet experience.Today's show was produced by James Sneed and Nick Fountain with help from Emma Peaslee. It was edited by Jess Jiang, engineered by James Willetts, and fact-checked by Sierra Juarez. Alex Goldmark is our executive producer.Help support Planet Money and get bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. A few weeks ago, we went to Vegas. We rode a roller coaster that went through a hotel. This is terrifying. You're terrified. That guy's not terrified. That guy's not terrified. That guy's ready.

We gambled. We played the penny slots. Here we go. Oh! Oh my God, we got something. Holy crap. We just won a dollar. We won a dollar? And 20 cents. Do it again. See what happens.

But the real reason we went to Vegas was because Vegas is home to some of the biggest, most extravagant, all-you-can-eat buffets in the world. Oh, this is it here? No, it's way over there. Oh, it's over there. Okay. This might be the longest line I've seen since we've been here. So we're here at the Caesars Palace Buffet. The name for it is called the Bacchanal. Yes, that is its real name. They are not playing around here.

There is like this shiny metal-plated rope. There are bouncers. There's this huge line of people waiting to get in. It feels like an exclusive nightclub. But luckily, we are here with a buffet insider. How are you? Nice to see you. We have a reservation at 7 o'clock. Brian Merzen knows the ins and outs and finances of one of the biggest buffets on the Strip. He ran things at the Bacchanal for years, so that fancy rope, it comes up for us.

We get to skip the line. You're a VIP. Look at this. Look at this. How you doing? Brian tells us buffets used to be this amenity that casinos offered to keep gamblers gambling. It was cheap and easy food. But not anymore. When we get inside the Bacchanal, we see that this is not cheap food. The first thing we come across, an entire island of seafood.

Yeah, you have some prawns. You have whelks. You have prawns, you have welks, you have lobster claws, you have crab legs, shrimp cocktail, Dungeness crab, you have some clams. It's not just lobsters, crabs, and clams. It is like piles and piles. And it's also different types of crab and different types of clams.

I've never even heard of a Cortez clam. I know. Here, let's grab a plate. Brian leads us around the corner, and we see a prime rib carving station, a section devoted to dim sum. There's even a whole roasted pig. This feels like a buffet amusement park. It feels like, what ride am I going to get on? I want to do them all. How do I

pace myself? We've come to a buffet because here at Planet Money, we believe buffets are not just a place to gorge yourself on food. They're also a place to gorge yourself on economics. Yeah, buffets are like this special place where all kinds of interesting economic phenomena that you might have only read about in a textbook, they come alive. And while we were with this buffet insider, we had to ask one of our burning questions. Is it possible to eat your money's worth? Is it possible to beat the buffet? People will never, they'll never beat us. You're telling me the

house always wins. House always wins. Even in the buffet. Absolutely. Okay, well, I guess we'll see. Hello and welcome to Planet Money. I'm Jeff Guo. And I'm Erika Barris. We are hitting the buffet in Las Vegas and we have a challenge. We're going to spot all of the economics happening at the all-you-can-eat buffet. Because nestled between the lechon dipping sauce and the beef steamship and the salmon risotto, there's a lot of economics going on. Today on the show, it is an econ scavenger hunt. All the economics you can find, all the economics you can handle at the All You Can Eat Buffet. Also, an economist will teach us how he optimizes a perfect visit to the buffet.

So we are here in Las Vegas on a scavenger hunt. We're going to find and point out as many economic concepts as we can at the all-you-can-eat buffet. And to help us out, we met up with an economist who's also a buffet expert. Professor Eric! Oh, it's so good to see you!

Oh, you hug her. Sorry, I'm sorry. Hi, Erica. So nice to meet you. Very nice to meet you. Eric Cheng is an economics professor at the University of Nevada, Las Vegas. We met him outside of the South Point Casino.

Eric has loved buffets for decades, since he was a college student in the 90s. So my classmates, we would go to lunch, bring our homework with us and study, and then we would stay practically for dinner. Oh my God, so the buffet was your meal plan? Yes, exactly. It was cheaper than the on-campus meal plan.

And Eric says buffets were priced so cheap for a reason. Casinos back then, it was all about drawing customers into the casinos. So clearly that was the main draw. So you go in for food, and then maybe you start gambling. Exactly. This sounds like an economic concept. This sounds like a loss leader. Of course.

Yes, absolutely. Is that right? Is that a point for you already? No, it's a point for us. Yeah, Erica, on Planet Money, scavenger hunts are a team sport. And right here we have our first point. Eric says, all you can eat buffets started out as classic loss leaders. They were like the Black Friday doorbuster deals,

something cheap to lure you in. Yeah, so according to legend, the modern all-you-can-eat buffet was born in Las Vegas in the 1940s. Some casino guy just laid out this smorgasbord of, like, meats and cheeses and let people have at it for the low, low price of one single dollar.

Okay, let's go back to the main entrance here. Eric leads us through the casino through a maze of slot machines. Actually, the buffet is over here. It's midday on a Wednesday. It's not too busy. Eric comes here a lot. He actually has a special club membership. Which brings us to our second economic concept. Eric points to the sign with all the different prices for the buffet. There's a regular price and there's a... That would be us on a normal day,

but today we are with a club member. Okay, so lunch is, oh my god, lunch is $19.95, but we get a discount, so we're only paying $17.95. Lucky us. Yeah, Eric says this is an example of a common thing that economists call price discrimination, which for economists is not necessarily a bad thing that economists call price discrimination, which for economists is not necessarily a bad thing. It just means charging different kinds of people, like seniors, different prices depending on how much they're willing to pay. And there's another econ concept hiding in those buffet prices, the fact that they all end in 95 cents. It's a very common framing bias. You see it all very common in stores and gas stations. You see prices end in 95 cents. It's a very common framing bias.

You see it all very common in stores and gas stations. You see prices end in 99, 95. Oh, of course. Yeah, framing bias is this behavioral econ idea that people are influenced by the way information is presented to them. We've already checked off three quick and easy-to-spot economic concepts on our scavenger hunt, and we're just window shopping the buffet. All right, should we get our first plate of food? You lead the way.

All right, I'm going to grab a plate here. We walk over to a wall of food. Basins of stir-fry, troughs of pasta, mountains of deep-fried everything. All these smells mixing together. It is olfactory overload. Where should we start? I like to just take a walk from one end to the other, get a sense of what you feel like eating first. Because at an all-you-can-eat buffet,

you have diminishing marginal returns, right? Oh, hold on, hold on. What was that? You have diminishing marginal returns. I think that's an econ concept. Where each next, each additional plate gives you a little bit less satisfaction because you're getting fuller. So you really want to have your first plate being your most favorite items. And, okay, this is why going to a buffet with an economist is, like, the best. Because Eric has this hyper-rational method for optimizing his buffet experience. And for this first plate, you might think that the whole buffet is your oyster, right? But Eric has this counterintuitive strategy.

It's actually kind of obvious if you think about it. The first plate should be devoted to your most favorite items. The food that you know is going to make you the happiest. And so we load up our plates with some most favorite items and sit down at a red vinyl booth. Oh yeah, these scallops. The trout is very good. As we dig into our first plate of classic buffet go-tos, we also dig into the next round of classic econ concepts. Eric starts off with the all-you-can-eat pricing model. The economics term for this is flat-rate pricing, where you pay one price to use a service as much as you want. And you see

flat-rate pricing in a lot of places. Cell phone plans, public transit, streaming services, gyms. And one of the reasons this model works is because these industries all tend to have low marginal costs. I have like a pass to the zoo and because I have it, I go all the time because I'm just like, I don't have to go for the whole day. I'll just go for an hour here and there. And the great part is it doesn't really cost the zoo much money to have you come more times, right? The marginal cost is relatively low. Marginal cost. I was hoping you'd say it. All right. Do I get that point? Yes.

High five. High five. High five. Yes. The marginal cost is low. Okay. Eric explains that the buffet has already made all these vats of food. So the marginal cost, the cost of letting in one more person to the buffet, is pretty low. Just like at the gym.

They've already bought all the treadmills. Or like at the cell phone company, right? They've already bought all the treadmills or like at the cell phone company, right? They've already paid to set up all those towers. And one reason these industries have low marginal costs is because they can take advantage of economies of scale. Like it is cheaper to whip up a tub of mashed potatoes than to make 50 individual plates. Wait, what is that? Two different kinds of chili. Whoa. Hatch chili. I didn't see that.

Other kinds of red chili. I didn't realize they had hatch green chili, too. As we're wrapping up our first plates, the last classic econ concept is right in front of me. My plate is full of noodles and salad greens, not the big ticket scallops or brisket. I'm looking at our plates. I think you guys went for the priciest stuff at the buffet, really. I am subsidizing your meal.

Buffets in general, they're kind of like a giant game of cross subsidies. If you're with your family and you're not hungry, you're still going to come and you're still going to pay the same price as everyone else. But you're going to eat a much smaller amount. Definitely those who are not as hungry are essentially subsidizing those who are very hungry. And this kind of cross-subsidization happens in a lot of industries. Like with airlines, the business class tickets are so profitable, they help subsidize the economy class tickets. Another example is credit cards. Credit card companies make a lot more money off of people who carry a balance.

And those interest payments that they're paying, those help pay for everyone's points and rewards. I'm ready for round two. You're ready for round two? Let's get another plate. Round two. With the classic concepts of economies of scale, low marginal costs, and cross subsidies in our heads, it's time for plate number two. Eric takes us on another lap around the buffet. Chicken cassoulet. Julia Child, eat your heart out. If you want that, it may not be there by the time you come back for plate three. I think it's worth trying. I think it's worth trying. Eric says for

plate number two, his buffet optimization strategy is to explore, to get out of his culinary comfort zone. This time it's trying some foods that I typically wouldn't eat, but I just get to try some things that maybe if I enjoy it next time I come, I'll have that as my first plate. Uh-huh, uh-huh. Because the cost of taking a risk at a buffet is... Zero. If I don't like it, you just don't eat it. As we sit down with our new foods, we're also going to level up on the economic concepts on our scavenger hunt. We start with a big one. It has to do with a problem that a buffet faces. If everybody kind of knows that, you know, if you eat more than

the average person, you're kind of getting a deal at the buffet. If you eat less than the average person, you're kind of maybe subsidizing the people who eat more at the buffet. That's right. In the long run, wouldn't that just mean that only the people who tend to eat a lot or overeat come to the buffet? And then the average price of the buffet will have to go up because the buffet will have to just start catering only to these big eaters? Absolutely. You're essentially referring to the problem of adverse selection. Here's the problem of adverse selection.

For people like Eric, buffet is a really good deal. Like he runs marathons. He is a big eater. So he goes to buffets a lot, at least once a week. And if big eaters like him go more and more, that can end up driving up the price of the buffet for everyone. One famous example of adverse selection has to do with health insurance. So here's a general idea. People who tend to need a lot of health care, like people with pre-existing conditions, they're more likely to buy health insurance.

But if the system doesn't have enough healthy people to balance the costs, it might wind up in this vicious cycle where insurance premiums just get more and more expensive. Yeah, adverse selection was a huge topic of debate when Congress was passing the Affordable Care Act. Yeah, they called it the health insurance death spiral. I think it's an economics term. It's like a health economics term. OK, I'll give you that. We'll take it. We'll take it. So the next economic concept that Eric points out, okay, this one is kind of meaty.

Economists have found that in a lot of cases, flat rate pricing is a bad deal. A lot of people would actually be better off avoiding all-you-can-eat buffets or, like, unlimited cell phone plans. They'd actually save money by buying their food or their cell phone minutes a la carte. So it's kind of an economic mystery why so many people gravitate towards flat rate pricing. Economists call this mystery the flat rate pricing bias. And they've come up with three potential explanations. So first is the idea that people are just irrational. They overestimate how much food they're going to eat or how many cell phone minutes they're going to use in a month. And when economists do surveys of people, they find that

overestimation does explain some of the bias. But it's not the whole story. Eric says there's another explanation, a more rational one. Well, in general, consumers don't like to feel like they're being nickel and dimed, right? They don't like to feel like every unit of a product they consume, they're going to be charged for. And so that's, for example, this is often called like the taxi meter effect, where if you sit in a taxi, watching that meter tick up for every short distance that you go, or even sitting in a stoplight and seeing it just keep ticking up and up, it has some really awful feeling. We took a taxi to get here, and I just watched the numbers go up. And I was like, when is this going to stop?

Psychic disutility. And so when you come to a buffet, knowing that everything is included, where you're not going to get charged extra, the dessert is included, the drinks are included, everything is included, that gives you the freedom to just sample and enjoy without that feeling that you have to pay more. Yeah, people are willing to pay a premium for that freedom to avoid the pain of the taximeter effect. And related to that is the third explanation for why people opt for flat rate pricing. It has to do with something that economists call the insurance effect, which is if you're not sure how much you want to eat or even what you want to eat, a buffet can be nice because you know that you'll only be charged one flat rate. So flat rate pricing, it takes away the risk of an enormous bill.

Economists say that people are attracted to flat rate pricing for a mix of all three of these reasons. The taximeter effect, the insurance effect, and because they sometimes overestimate how much they're actually going to consume. Professor Eric, I notice your plate is getting a little empty. Is it time for round three? I think it's time for round three, although my round three is going to turn into my dessert round. We're going to finish up our econ scavenger hunt with one last plate. That's after the break. Hey, everyone. Darren Woods here. Healthy economic growth means low unemployment. It means making more stuff. And it means higher mortality.

So when the economy's doing well, deaths overall go up. That's kind of counterintuitive to hear, even for some economists. I would present the paper and the reaction I would have from economists would be, well, I can't see anything wrong with what you've done, but I just don't believe it. Booms, busts, and the surprising effect on mortality. That's in our upcoming bonus episode for Planet Money Plus listeners.

If that's you, thanks for your support. If it's not, well, it could be. You get bonus content, sponsor-free listening, and you get to support NPR in the work we do. Go to plus.npr.org. We are on an economics scavenger hunt at the All You Can Eat Buffet. We've spotted 13 economic concepts so far, but we think we can find a few more. So it is on to plate number three. What'd you get? What's on your plate here? I got three desserts. I got the chocolate cake,

the apple cobbler, and the bread pudding. I also got two gelatos, the raspberry and the mango. It fills in the empty cracks and spaces in your stomach after you have two large plates of food. Okay, so at this point, we are feeling it. We are coming face to face with the dark side of this land of no prices. Because prices are a mechanism to allocate demand. This is what economists like to call the invisible hand. But when prices are too low, like when the cost of an additional slice of cake is zero, we may tend to overconsume. Yeah, and on top of that, sometimes with flat rate prices, there's this desire to get your money's worth, which leads to even more overconsumption. And look, overconsumption can sometimes be good. Like that's one reason that a lot of public transit agencies offer flat rate pricing is to encourage people to ride the bus or take the train more.

But with buffets, overconsumption can physically pain us. So I remember growing up and my parents would always encourage us to eat more, eat more when we go to a buffet because we've already paid for it. You do. We don't have to eat dinner. We just stuff ourselves at lunch and we're good for the day but in reality that's not great economic thinking right because if you're stuffing yourself and you're giving you're feeling bloated and over and you overeat you're actually feeling worse and your your utility is actually going down because utility is more than just about money. That's right. Utility is about your overall happiness. Yeah, economists love talking about maximizing utility.

And Eric's third and final tip for optimizing your buffet experience, your life, is to do just that. Maximize your utility. Meaning, eat for your overall happiness. Eric says it's a common mistake to try and eat your money's worth at the buffet. It's what economists call the sunk cost fallacy. If you're being rational, you can't let stuff in the past, stuff that you can't change, affect your decisions right now. In this case, we already paid the entrance fee to the buffet. So now we should only eat to maximize our utility. Economists like to use utility to measure individual's satisfaction.

So satisfaction can come from money and other materialistic things, but it can also come from just things that make you happy. Your favorite sports teams win, you get your day off with your family. You get to just have a nice sunny day. All these features or events gives you utility. Eric's reminding us that economics is not just about money. It's about so much more than that. It's about the things that bring us joy, that make life delightful,

that make you want to get out of bed in the morning. And as we reflected on our buffet adventure today, over our crowded plates of cake, cobbler, and multiple flavors of gelato, we realized that there's one important way that buffets bring joy to our lives that we haven't really talked about, even though it's been staring us right in the face. And this brings us to our final economic concept on our scavenger hunt. It is our 17th concept. Lucky number 17. Which is that a buffet is a place where you can find stir-fry noodles next to the shrimp ceficha sandwiches, where you can pile nachos and sweet and sour pork onto the same plate. Buffets offer extreme variety, and people love having variety in their lives.

It's the spice of life. It is the spice of life. That's an idea at the heart of so many economic models. And economists, they have this fancy name for our love of variety. They call it convex preferences. And in Vegas, the buffets have taken this insight and they have supersized it. The Las Vegas buffet may have started out as a simple offering of meats and cheeses, but today it has grown into this feast-a-palooza of exotic seafoods and cuisines from around the world. And these new jumbo buffets, they're not really loss leaders anymore. They're not about stuffing your face or getting a good deal.

They're about catering to this very basic human craving for variety. In recent decades, economists have noticed that the entire U.S. economy has become kind of more like a buffet. Variety is increasing. And you've seen it, right? When you go to the grocery store and they're like, I don't know, 50 different types of shampoo and like a dozen different kinds of cereal. Economists say that having a lot of product choices, that's a sign of a healthy market because more variety means more consumer welfare. And this, I think this is kind of the perfect Vegas lesson. That more is more.

More is more. And as we scoop up our last bites of more gelato, we also wrap up our all-you-can-eat econ scavenger hunt. We really got our money's worth, even though I know that's a fallacy. Okay, I really do feel like we did get our money's worth with the food, but also with all of this economics. But we shouldn't keep you any longer. Thank you so much. This was a lot of fun.

You're always welcome in Vegas. You know where I am. Today's show was produced by James Sneed and Nick Fountain with help from Emma Peasley. Erica, we should try to see how many different kinds of dessert we can fit onto one plate. Okay, fine. It was engineered by James Willits, fact-checked by Sierra Juarez, and edited by Jess Chang. A little Oreo peanut butter dream. Oh, it's an Oreo peanut butter mousse.

Ooh. Blue Bay chiffon cake. Ooh, you should get this. Okay, we're going to get one of these. Okay, we're up to three different. I do love tiramisu. Here, I'll get some for both of us. Alex Goldmark is our executive producer.

Raspberry manicotta. Look at this beautiful pink color. Chia seed pudding. You're a fan of Jell-O, aren't you? I love Jell-O. All right, we're going to get some Jell-O. I'm Erica Barris. And I'm Jeff Guo.

This is NPR. Thanks for listening. Egg tarts. Oh, my gosh. Oh, it's hot, too. Jeff, you're very good at buffeting. Thank you. That's the nicest thing anyone's ever said to me.

Next week on Planet Money, we're going deep into one of the more dramatic bodies of law in the United States. Antitrust. The records have disappeared in a lot of cases. Hmm. Suspiciously disappeared. Suspiciously disappeared. We tell the story of a thrilling investigation. That changed how the government regulates competition and markets today.