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February 7, 2007

Coffee without a price tag (part 1)

The Terra Bite Lounge is a coffee shop without prices. Customers choose to pay whatever they want anonymously - or they can get the coffee for free. Using a strict rational choice economic model, no one would pay (or so the article claims). However, the average price of coffee (or a "transaction" which could be anything from an espresso to a double mocha with a cookie and a bagel) is 3 dollars.

This article is about so much more than coffee. It's about whether people are inherently good or inherently selfish - a question which is often at the root of debates not just in philosophy, but political science and not least international relations. Althought the question in itself is endlessly interesting, debating it endlessly is boring: it's obvious (at least to me) that we are somewhere in between these two extremes. I believe that people are selfish in the most basic sense of the word: we care about ourselves first and wish to benefit as much as possible from our choices. But this doesn't rule out acts of goodwill, especially when we percieve the cost for us as much, much smaller than the benefit for someone else. After all, we want to live in a world where people think like this.

I don't think people give up free coffee for fear of "the guilt of not having paid for it and the scorn of other customers", as Steven D. Levitt writes in the Freakonomics Blog. I think they give up free coffee for fear of losing the opportunity to get free coffee in the future. Paying because you just feel that the nice people who are willing to give you free coffee deserve to get paid doesn't really make sense economically. The people behind Terra Bite wouldn't be doing this if they didn't think it would give them at least some small profit. The founder, Ervin Peretz, says "If it turned out that 20 percent of the population were dishonest, we could just put in a cash register." Which means that, if possible, you should pay today, so that the coffee will still be free tomorrow.

What would happen if one of my coffee places let me determine my own price? As a college student with relatively expensive habits, I would probably appreciate the chance to drink for free every once in a while. But since I'm willing to pay for coffee at today's prices, never paying would be avoiding a very small cost and risking a very big future gain (the wonderful feeling of a perfect double cortado and a brownie after deciding that my bank account is too tiny to justify buying new shoes). I would give the coffee shop my spare change if I had any, but since I often don't, I would probably work out some sort of average sum for what a cup of coffee is worth to me, paying a little more if I were feeling rich and a little less if I wasn't. The basic idea (that I have to pay today so I don't have to pay tomorrow) is rational; figuring out a price by gut feeling isn't.

Posted by Julie at February 7, 2007 5:53 PM

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