PWYW: Honor code or fear of embarrassment?

Last week I decide to verify the hypothesis that I had put in my last month's blog entry "Pay What You Want - Is it Honor Code that makes this work, or is it something else?", which was "It is the fear of embarrassment that makes most people pay a fair price, honor codes were buried way back in school days!!"

I picked two groups of students, and gave the following problem to them:

Group 1 got the following problem:

"Let's assume Sweet Evenings is a fine dining restaurant in the Juhu area. This is a special restaurant that does not have fixed prices for its menu items. In fact, it allows the customers to pay whatever they want for the food and beverages they have consumed.

You love this place for the live music played here and the impeccable service. Today, you have taken your long time friend from work to this place, and together you consume a bottle of wine, two-entrees, salad, bowl of soup, and a dessert. How much would you pay for both of you?"

Group 2 got the same problem, except for the last statement:

"Let's assume Sweet Evenings is a fine dining restaurant in the Juhu area. This is a special restaurant that does not have fixed prices for its menu items. In fact, it allows the customers to pay whatever they want for the food and beverages they have consumed.

You love this place for the live music played here and the impeccable service. Today, you have taken your long time friend from work to this place, and together you consume a bottle of wine, two-entrees, salad, bowl of soup, and a dessert. How much would you pay for both of you? Sweet Evenings has a small display screen behind the bartender where they display the table number when a payment of Rs. 1200 or more is made."

Since the only difference between the two groups is that small screen behind the bartender, which just displays the table number, both the groups should be looking at paying about same amount of money to Sweet Evenings. The office colleague won't know the price paid in either of the situations. In both the situations, the person paying low price is not getting singled out.  But still, just this minor, probably irrelevant, difference lead to first group of students averaging at Rs 1,155(~$23.11), while the second group averaged at Rs. 1497(~$29.95). That's a difference of 29%. In the first group, only 36.84% of the students responded with payment of Rs 1200 or more, while in the second group this number is 75%.

Fear of Social Embarrassment at work here!!

Pay What You Want - Is it Honor Code that makes this work, or is it something else?

95%+ students participate in some form of Plagiarism during their academic careers. This statistic holds across the globe. Some even argue that this number is in excess of 99%; honor codes exist in books, in real life it's a wishful thinking.

Wait a minute, I am not saying that Name your own price, which is more commonly referred to as pay what you want (PWYW) is a bogus concept. There are several examples of companies that have successfully used this approach; certainly there is more than honor code to it. Restaurants like Little Bay and Just Around the Corner in London, Pay As You Please in Ireland, SAME Cafe in Denver, One World Everybody Eats in Salt Lake City, or Annalakshmi in Perth, or Apparel stores like Brand Alley and LastWear, and many more companies across industries are successfully practicing the PWYW model.

People give money in charity, but not any charity. People always help each other, but not anyone who needs help. When buying a house, if the seller is asking for $500K, there will be many buyers who will try their best to have the seller lower the price down to $490K, even when the fair market price of the house is $510K. But a large majority of the buyers will not pick a $100 bill lying on the floor of the house being sold during one of their visits. These same people were trying to underpay by a much larger amount that $100, but this $100 bill that comes with no strings attached does not attract their love. Why?? (of course there will be some exceptions who will quietly pocket that $100 bill and will never show up again at that house, but we are taking about the majority who will not)

Honor code and personal references are very confused subjects. I showed the following set of gymnasium membership options to my students (Weights only for $20 per month, Classes only for $40 per month, and Weights and Classes both for $40 per month), and majority of the students opted for Weights and Classes both for $40; no one opted for Classes only for $40 per month. When I showed another set ofgymnasium membership option (Weights only for $20 per month, and Weights and Classes both for $40 per month) to another set of students, taking out the Classes ($40) option out as no one opted for it in the first set, this time majority of the students opted for the Weights only for $20 per month. What happened to their personal references???

More than the honor code, it is the embarrassment of being seen as misusing an offer that makes people pay an non-unreasonable price at PWYW avenues. Let's say you go to one of these restaurants on your first date, you don't want to be seen as a mean person, so you'll try to be fair. If You know that the place gives money to charity and at the time of payment people are watching you (some of these places even announce your name when you pay a good price), you don't want to go through the embarrassment of being seen as a mean person in society. I bet, at the very same place if no one is watching, customers will pay much less amount than what they pay when they feel that someone is watching'em.

It is the fear of embarrassment that makes most people pay a fair price, honor codes were buried way back in school days!!