Why does check splitting cause people to spend more?

Friends or colleagues who dine together at restaurants commonly split the bill. This is a lot easier compared to consolidating each one's 'right' share.

Back in days when I was still a vegetarian, I would find this practice highly unfair since chicken kebabs and roasted pork is lot more expensive than fried rice and lentils. Thus check splitting often does lead to disproportionate distribution of bill. But apart from this, there is yet another consequence.

It gives everyone an incentive to spend more than if each had dined and paid separately. Why does this happen?

Let's talk about the concept of perceived value again. Say I am dining with 5 friends and we have decided to split the bill in the end. I am trying to make up my mind between mac n cheese listed at $10 and a lasagna at $20. Assuming my perceived value/willingness to pay for the lasagna is $15. That is, for me the lasagna gives me $5 of additional benefit compared to the former. But any price more than $15, I am better off ordering the former.

Had I been dining alone, I would have settled for the Mac n cheese. However, I know that since I am sharing the bill with 5 others, my marginal increase in share is just $2 (one fifth of the additional $10) which is still lower than the incremental $5 benefit. Thus I will order the lasagna.

Economist call such decisions inefficient as my $3 benefit is against a -$8 for the rest of the 4 diners, giving a net group benefit of -$5, resulting due to my decision of ordering a more expensive dish.

Then why do people still split their bill? Simple. Imagine if each of us do the same (with/without anticipating similar behavior by the rest). All 5 of us order more expensive dishes than we initially intended. The Result would be a larger total bill but also a smaller nett surplus loss. Each of us would benefit from our actions and lose from the rest's. It is still inefficient since now on an average you may end up paying more. Also depending on what item each ordered some could really gain and some lose.

The other obvious reason is the convenience that check splitting brings in.

So do you like splitting bills or paying your own share? Do leave your comments. Happy dining!

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