I visited Floyd's Diner in Victoria for brunch with some friends yesterday. They have an interesting menu item: The Mahoney. Essentially, the cook makes whatever he wants, and you can either pay face value, or flip a coin and get it free if you win but pay double if you lose. I think it's supposed to be a reference to Dan Mahowney (yes, Floyd's made a spelling mistake), a gambling addict.
It's a novel concept. Economists usually assume most people are risk averse, and consequently there are lots of insurance-type products and money-back guarantees in the market to cater to these people. But rarely do businesses (other than casinos and lotteries) cater to the risk lovers among us. Offering people a chance to flip for a free breakfast or paying double seems smart -- it increases the expected value of the meal for risk lovers, and while the restaurant will lose money on the meals it gives out for free, over the long run its revenues should be no different than if it simply charges face value (assuming, of course, the coin toss results in a 50-50 outcome).
For the record, I was feeling risk averse and opted for the Cajun Club with fries. It was delicious.
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