Question

Part I. FREE 72-oz Steak Dinner: An All-or-Nothing Deal

In Amarillo, Texas, a restaurant offers the following deal: Eat the 72-oz (that is 4.5 pounds or 2 kilos) steak dinner with all the trimmings, that include shrimp cocktail, salad, roll, butter, and baked potato, in one hour, and it’s free. More than 35,000 people have tried, and 5,500 people have succeeded. But you must eat it all – or you have to pay for the bill and some penalties   Let’s say you try this, but half-way you start to feel nauseated. With reference to our topics in chapters 10 and 11 about how consumers made choice and marginal utility, please answer the following:

a)      On what condition(s) would you continue consuming the food?

b)      Give three examples of “all-or nothing” deals that you have seen. Have you bought them, why or why not?

Answer 1

One of the most important laws that help consumers make rational choices is the Law of Diminishing Marginal Utility. The Law states that, everything else remaining unchanged, as more and more units of a commodity are consumed, the marginal utility derived from consuming one additional unit of that commodity goes on decreasing. A rational consumer always aims at maximizing his/her total utility and should ideally stop at the point where total utility is maximum and marginal utility is zero. Consuming even 1 additional unit of the product immediately would reduce the total utility as marginal utility would be negative.

a) In the case where halfway through the steak I feel nauseated, it is a sign that my total utility has started to diminish. This means that the steak that we usually look forward to and which increases our utility from its consumption is now causing discomfort and is not adding to my satisfaction. Under such situations I should ideally give up after a point where I can no more eat the steak. However, I will continue to consume only if the restaurant owner would allow me to take a break or extend the time. This is because, one of the most important assumptions of the law of diminishing marginal utility is ‘continuity of consumption’. If there is a break in the continuity and I come back to consume the steak after a good long walk or some activity that makes me feel hungry again, then my marginal utility would not go down. Rather, it’ll be a calculation of a fresh marginal utility even though I’m consuming the same good and this break in the continuity of consumption (even though it breaks the law of diminishing marginal utility) will make me continue consuming the steak. Alternatively, I might pop in a medicine that will stop me from vomiting and can continue eating the steak after a break.

Another point that will make me continue consuming the steak is if the additional penalties associated with the bill depend of the quantity wasted. If the penalties are larger for larger quantities wasted, I will continue to consume up to a point where I feel that being nauseated and feeling uncomfortable gives me a greater utility that paying additional penalties.

b) Three other examples of ‘all or nothing’ deals that I came across were:

1. A challenge that asked me to polish off a plate of 20 spicy chicken wings in 10 minutes and hit the wall of fame with a free meal, or pay for the meal.I didn’t take up the challenge for two reasons: Firstly, chillies are not to my taste. My tastes and preferences are away from spicy things so I wouldn’t have taken that challenge up anyway. Secondly, the challenge was fairly easy for spice-lovers and there were many people up on the wall of fame. What’s more is that the plate of spicy chicken wings wasn’t that costly that would give you a feeling of achievement after having won a free meal. So going in for this challenge at the cost of severe discomfort was not worth it.
2. Another food related deal was with stuffed Indian bread where one had to finish a huge stuffed Indian bread weighing 1 kilogram, within 50 minutes in order to win a LIFETIME SUPPLY OF FREE stuffed Indian breads. I bought the deal because the reward seemed worthy of the pain taken up during the challenge. One free meal would never attract challengers but a lifetime supply of free stuffed bread is something that many people would look forward to. Secondly, I took up the deal knowing that I would in all probability not be able to seal it, however, the commodity in question was delicious and not costly, which made me have no regrets for giving this a shot. There was nothing to lose.
3. The third ‘all or nothing’ deal was at a sale of casual wear where either one had to buy a pack of 10 t-shirts at the price of 8 shirts, or get no discount at all. I took the deal because even though the t-shirts looked very similar, this bundle of good was worthy of being spent on. There was no continuity of consumption that caused any discomfort or reduction in marginal utility because the goods could be consumed at my own pace. Moreover, they fit my taste of comfortable clothing and it was something that I’d get a return on for a long time.