Priceless

The myth of fair value--and how to take advantage of it.

Super-Sizing the Price

How a $69 hot dog persuades diners to spend more

Serendipity 3's $69 hot dog
Serendipity 3 press release
Pity the summer tourist in New York, the city where everything is more expensive than it is back home. Last month, Serendipity 3, a popular New York eatery, introduced a $69 hot dog. Call that a leading indicator: Several Manhattan places introduced $100+ hamburgers prior to the 2008 meltdown, but not many have been added since - maybe lest the masses storm the place with pitchforks. Like the hamburgers, Serendipity 3's "Foot-Long Haute Dog" attempts to justify the price with garnishes. The hot dog comes with medalions of foie gras with black truffles and caramelized Vidalia onions. The accompanying ketchup is said to be made from heirloom tomatoes. The mustard has shavings of truffles. Foodies are left to ponder whether the flavor of truffles and foie gras can stand up to a good slathering of condiments.

Serendipity 3 is a dessert-heavy place popular with tourists wanting to see celebrities. The introduction of the $69 was transparently a way of getting summer tourists' attention. It was introduced on National Hot Dog Day with a representative of the Guinness Book of World Records on hand to "certify" it as the world's most expensive hot dog. The restaurant's very busy press agent, Joe Calderone, talked up the hot dog and the alleged celebrity clientele to anyone who would listen. ("Cher is a regular who always get the regular foot-long. Now we will offer her the most expensive one.")

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I will leave it to readers to contemplate the subtexts of a $69 foot-long hot dog. But there's a bit more psychology at work here than the obvious. Absurdly priced menu items are an application of "anchoring," a cognitive phenomenon discovered by psychologists Amos Tversky and Daniel Kahneman in the 1970s. Whenever we try to estimate a numerical value, we are unconsciously influenced by related numbers just seen or thought about. In this case, the diner in a touristy Manhattan restaurant is trying to decide how much he or she can afford to spend. The prices the diner is used to spending at home don't apply; it's a whole new world. That diner isn't about to order a $69 hot dog, but might happily opt for an $17.95 cheeseburger. The hot dog makes the cheeseburger appear reasonable in comparison (even though $17.95 would be a ridiculous price for a cheeseburger most places). Yes, it all sounds a little ridiculous, and the thought process I've just outlined isn't necessarily conscious. But in scores of careful laboratory studies, price contrasts like that affect decisions. It's now pretty well accepted by restaurateurs and consultants that it works on menus, too.

Serendipity 3 Menu

From the Serendipity 3 menu

The hot dog isn't the most expensive thing on the Serendipity 3 menu. They have a $1000.00 chocolate sundae, introduced before the Great Recession. Its real agenda is to convince people it's sensible to pay $15.50 for a "fruit and fudge" confection, or $22.50 for a "Cheese Cake Vesuvius." Menu anchors in the $1000 price range are in the semi-mythic category. The Golden Opulence Sundae is said to be Tahitian vanilla ice cream lavished with edible 23-carat-gold leaf and caviar and chocolate. (Again, a dubious combination there.) Would Serendipity 3's chef make one if you ordered it? You bet! The profit margin must be staggering. Does anyone order it? How often does that happen? Calderone told AOL News that that the restaurant sells about one $1000 sundae a week. If you believe that, you don't know much about the glamorous life of a Manhattan press agent.

William Poundstone is the best-selling author of 11 books, including Priceless: The Myth of Fair Value (and How to Take Advantage of It).

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