For some context, try reading Thinking Fast and Slow by Daniel Kahneman or Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein. They’re a pair of marvelous books about behavioral economics which explain, among other things, how our biases can shape the choices we make. People tend to work harder to avoid losses (the 10-cent charge for a paper cup) than they do to pursue gains (the 10 cent discount for bringing your mug).
To test my theory, I reached out to Amy Krosch, my favorite student of behavioral economics. Amy is a doctoral candidate in social psychology at NYU and formerly an associate director at the Center for Decision Sciences at Columbia. [Disclosure: Amy will soon marry my daughter Sarah!]
“I think your intuition is totally correct,” Amy told me by email. “Making the default $1.50 and requiring people an extra 10 cents for a to-go cup should be more useful in encouraging people to bring their own cups. The 10 cent savings probably only appeals to people who would already have brought a cup anyway.”
There are probably several processes at work in such a strategy, but the strongest are likely loss aversion and social norms.
Loss aversion suggests that peoples’ subjective value of 10 cents is greater when it is being taken out of their pocket than added to it. Kahneman & Tversky’s Prospect Theory suggests “losses loom larger” – that is, losses hurt more than gains feel good. On the flip side, it has been shown that when the amounts are small, gains actually “loom larger” than losses. However, in the cup situation, people who buy coffee daily or multiple times a day would likely see the loss in terms of money spent over time -- and your manipulation would probably be more effective for them.
Overlooked by the behavioral econ theory is the strong influence of social norms. The social norm to do the “green thing” can be incredibly powerful in such situations (as anyone publically shamed at the grocery store for forgetting their reusable bags knows; a situation portrayed for comedic affect in Portlandia.) If everyone in line at the Starbucks has a reusable cup, you’re going to feel bad if you didn’t bring one -- and you’re going to remember your reusable cup!
This approach works, as we know, with taxes on plastic bags. So the question is, why won’t Starbucks do this? I’m afraid the answer is that because the company knows it will work.
I recently moderated a panel about food packaging with Jim Hanna, director of environmental impact for Starbucks. The event took place at Cooking for Solutions, a great conference about food and sustainability run by the Monterey Bay Aquarium. I asked Hanna why the company didn’t replace its small discount for mugs with a small charge for cups, without changing the actual prices. After all, the company doesn’t like to see images of what some call “branded trash.”
Jim told me (and I’m paraphrasing here) that Starbucks wanted to protect its relationship of trust with its customers, and it didn’t want to “penalize” them for not bringing a mug. Some customers also might misinterpret a 10-cent charge for cup as a price increase, even if the coffee price dropped at the same time.
“It comes down to the relationship that we’ve built with our customers over the past 40 years,” Jim said. The company does not want to suggest to its customers that there’s something wrong with their daily habit of drinking a beverage in a disposable paper cup -- even though there is, kinda, sorta, something wrong.
I write this not because I’m cynical about Starbucks, but because I admire the company. It’s been a leader around issues of social and environmental responsibility like Fair Trade. [See my recent blog post, Brewing a green cuppa joe at Starbucks and Thanskgiving Coffee.] But I can’t understand why Starbucks won’t at least test out this new way of talking about prices, and see how customers react.
Who knows? It might eliminate some of that branded trash.