Economists study how naïve people subsidize cut rate hotels

By at 10:37 pm Saturday, Jul 22

New York Times has an interesting article about the work of two university professors from Harvard and MIT/Princeton who say savvy people take advantage of good deals by avoiding the hidden costs that suckers pay.
The smartest strategy, they say, is for the sophisticated consumer to choose the service with the most hidden charges and highest add-on prices, but then avoid paying those added costs. “The sophisticated consumer takes advantage of that,” Mr. Gabaix said. “The naïve pay all the fees.”

For example, you see an offer for a room at Nontransparent Hotel for $75 (which costs the hotel $100 to provide). The guy checking in behind you also rents a room, but will rack up $70 in fees from the minibar, the phone and garage parking (all of which cost the hotel $20 to provide). You, on the other hand, were not tempted by the minibar, used your cellphone for calls and took public transportation to the hotel. The other guy subsidized your room.

Link

Reader comment: Robert says:

Since I just read the study, let me add my $0.02. It seems somebody along the chain to boingboing missed the main point of it - most economic theories predict that the hotel without hidden costs would benefit from making its opponents maneuverings public. Instead, it turns out they're better off adding hidden costs themselves.

That shatters the whole myth of the 'rational consumer', a core assumption of econ theories. Then again, if you look at spam and realize that there must be some people buying the offered goods, you knew that already ;)

Mark Frauenfelder

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