prior probability

At some restaurants (like Qdoba), a side of guacamole is included in the price of your burrito, while at other places (Chipotle), the guac is extra. Not surprisingly, the cost of a burrito is about $1 more at Qdoba than at Chipotle, but at the same time, a side of guac at Chipotle costs $1.80. (Check out this Quora on Chipotle’s arguably abusive guacamole pricing policy.) So, from a business or economic perspective, which pricing policy is the optimal one? 

Bonus questions: Why doesn’t Chipotle charge extra for other sides like salsa or sour cream? Also, how “elastic” is the demand for guacamole, and why might the price elasticity of guac explain Chipotle’s pricing policy?

Update (1/28): Our friend and colleague Jonathan Kariv responds as follows: “My first thought (which could well be obviously wrong to people who’ve thought harder about this than I have) is that maybe it’s beneficial to both Chipotle and Qdoba to have different pricing models. Perhaps if they do the same thing, then they’re competing more directly, but if they do different things, then they both get to dominate a different section of the market. This might be extendable to the bonus question of other add ons. Maybe they’re just adapting to the other guys strategy.”

Hat tip: Sydjia Guerra

Notice how both contestants solemnly promise to each other not to steal. Notice too how they provide compelling reasons in support of their promises. (Hat tip: Mike Munger.)

In our first business law class this semester (BUL3130), we introduced our students to the movie “The Social Network” (see preview below) and to the real-life protoganists in our semester-long case study on the origins and growth of Facebook: hacker Mark Zuckerberg and his best friend Eduardo Saverin, their business and social rivals the Winklevoss twins, entrepreneur Sean Parker, and angel investor Peter Thiel. In class #2, we will examine whether Zuckerberg broke any laws or breached any legal duties when he built a website known as Facemash.

This is what we were reading over the holidays:

1. Ernest Hemingway, A moveable feast.

We returned to Hemingway’s Paris memoir. (Overall, this was our third reading of Hemingway’s vignettes of his early years in Paris.) Two details struck us this time around: Hemingway’s risky decision to stop working as a journalist in order to devote himself to his real work, and how little writing he actually did in Paris, for he wrote and rewrote most of his first novel in Austria.

2. Roy Sorenson, Thought experiments.

A book-length response to Thomas Kuhn’s essay “A function for thought experiments.”

3. Daniel & Richard Susskind, Transforming the professions.

This father and son team explain how advanced machines like IBM Watson will soon eliminate lawyers, doctors, and accountants (and other professions too), and why this is a good thing!

4. William Pounstone, Labyrinths of reason.

We stumbled upon a copy of this book at a used bookstore in the Mission District in San Francisco (Poundstone is one of our favorite writers), and this particular book of his could be read together with Sorenson’s, as it covers many of the same thought experiments. (It turns out that many thought experiments are about paradoxes.)

5. James A. Harris, Hume: an intellectual autobiography.

We have been wanting to read this tome since Tyler Cowen recommended it to us last year, but we waited in vain for the paperback edition to be released. We just ordered a used edition and started reading it, so we will provide regular updates in future posts.

Update (2/1): We just completed our reading of Harris’s tome on Hume. We will be blogging about his extraordinary book soon.

Cat not included.