The Olive Bar, The State, and Rule-Ambiguity
There I stood with 8 olive pits in my cheek, talking to the checkout lady at the grocery store as she waved my half-pound container of antipasto over the scanner light. All the while, I hoped she that she wouldn't notice or ask why I sounded like I had marbles in mouth.
Like many shoppers before and after, I had been standing at the olive bar "sampling" red, green, and black olives—first the ones without seeds, so that there would be no evidence of my deed, then the ones stuffed with cheese and garlic, and then finally the ones with seeds because I couldn't resist the temptation.
Sure, there is no sign on the bar that says: "do not sample." Nor is there a sign that says: "free samples." It is all kind of vague. The beautiful olives are display in the open, under a small canopy, in this self-service bar that only invites the customer to fill up plastic containers with food and pay based on weight.
Was I stealing? Was everyone? In a sense yes: the food I ate, I did not pay for. So feeling a sense of guilt, I filled up a tub of olives and bought them—my tribute paid to expiate my grocery-store sin.
I would never do this in the produce section. People don't usually sample the lettuce, carrots, or even apples. Please!: That would be tacky and wrong. But an olive bar's status is oddly ambiguous: everything looks immediately edible, almost like the store mangers are inviting you to sample.
Maybe they are, maybe they are not.
It later occurred to me that the ambiguity might by the whole point. People eat and then feel a sense of obligation, and then buy. Might this really be a marketing scheme?
Later, with a small team of researchers, I staked out the olive bar to see if this theory holds up.
We pretended to be regular shoppers. Over the course of an hour, we observed unscrupulous people walking by quickly, stuffing a few in their mouths without buying anything; other scrupulous people bought without sampling any. After an hour of watching, our team only saw one other customer who replicated my own behavior.
The next day, our team observed several people who bought olives but did not sample, one man who at handfuls and walked away, and one person who sampled an olive and proceeded to fill up a container and purchased.
So while we saw plenty of sampling, only two people in two days both sampled and bought.
Not ready to declare the theory a bust, it was time to interview people who watch this bar all the time: the baker and the wine salesman. The baker said people steal olives all the time, and he laughed about it. I asked why he doesn't put up a sign that forbids it, and he just laughed and shrugged.
The wine guy was more forthcoming. If people ask him, he freely suggests that they try some samples. People who do sample also usually buy. We asked if this was the point after all, and he answered with a general theory of his own:
Paraphrasing: A grocery store lives on the fence, neither claiming their food is their own nor inviting people to freely sample what they want. We create zones of uncertainty and let people wander within them freely, letting people take their own path. The hope is that they will imagine the store's food as their own, and then make that come true. The olive bar is a case in point: it not only lives on the fence; by being so beautifully displayed, it suggests a home environment, and has thus spawned antipasto parties all over town.
At this point, the baker became more open with his knowledge of olive-bar sociology. He revealed that the olive bar is one of the most consistently profitable sectors of the store. "It brings in $1,450 per week" he said excitedly.
Our team of researchers had the theory confirmed: the bar's profitability—which is a measure of how well it serves the public—is related to its shades of grey concerning the legitimacy of sampling from it. We also found that one customer cited an authority for olive sampling: a guy on the Food Network actually recommends that people do this!
Clearly, the rule ambiguity here is deliberate but it serves a larger social goal of bringing us what we want. Yes, there are those who take advantage, and there is some slippage. But the appearance of generosity, combined with people's sense of fairness, ends up being quite profitable.
Contrast the shades of grey in the private sector with the same phenomenon in the public sector. There are a huge range of government-created rules that are notoriously unclear:
• Insider trading rules (all profits are based on inside knowledge in some sense);
• Antitrust laws (how big is too big?);
• Money laundering (who is to say that a person intends to hide from the state or just exercise privacy);
• Discrimination (business actors are left to guess what will be considered evil and what will be considered legitimate).
So it goes with a million regulations that live on the fence: regulations on accounting, environmental protection, tax shelters, and on and on. The law depends not on the letter of the law but on the whim of enforcers.
There is an obvious advantage to this approach for the government. It keeps everyone living in a state of fear. The arbitrariness of it all makes us nervous and constantly aware of who or what is in charge.
But to what end? It's not like the olive bar run by the grocery store, where rule-ambiguity is concocted with the final goal of serving us. When the state creates legal ambiguity, it is for the purpose of allowing them to trap us, tax us, coerce us, keep us on edge and living in fear.
If you eat the state's olives, you might get away with it but you might not, and if you do not, you will not like the result.
Freedom lovers often rally around the idea of the rule of law. But the private sector, where freedom thrives, doesn't always give us that. Sometimes the rule of conscience and guesswork is enough, provided it is be administered by a private sector that wants to serve you rather than a state that wants to control you.
Comments (18)
Jeff,
You olive thief! Just joking, interesting article. I'd never thought of that. Do you think similar thing applies to the cherry section?
I must admit, I've always been annoyed by the people who just sample and don't buy! Or those people who will pick up each cherry individually, to examine it for blemishes! Even when the things are on sale, you see people doing that. There oughtta be a law. ;-)
Published: April 30, 2006 9:22 PM
Jeff,
Nice article. Good work contrasting the Private v. Public sectors in re: rule ambiguity.
In regard to the olive Bar, I think the Baker gave you an accurate insight into why the set-up is set-up that way. The margins on Olives retailed in Grocery stores are impressive--the shrinkage due to poachers is a small part of the COGS, and, as you found, effective advertising.
Keep up the good work.
Published: April 30, 2006 10:11 PM
Sometimes I nibble from the home made potato chips tray. Many times in fact.
Published: April 30, 2006 10:39 PM
Does this also apply to the Brach's free candy stand?
Published: April 30, 2006 10:56 PM
Great post. Reminded me of something I've always wondered about. Do the delis inside large grocery stores usually make money or lose money, as a department?
I would think they would go through a large amount of meat and cheese that expires before it is ever sold? But that's just a guess.
Published: April 30, 2006 11:34 PM
Jeff,
Was this an EMPIRICAL study you were conducting to PROVE a theory in the social sciences?
Deep
Published: May 1, 2006 12:46 AM
Jeff,
It is also a possibility that those who only bought without sampling had sampled at some point and started to buy regularly without further need for sampling.
Published: May 1, 2006 1:04 AM
"Was this an EMPIRICAL study you were conducting to PROVE a theory in the social sciences"
No, it is one of those rules of praxeology. Mises mentioned somewhere that olives are a desirable end.
Published: May 1, 2006 1:35 AM
Jeff Tucker's articles and blog posts are refreshing and wonderful in two distinctive ways. The first is his dedication to empirical applications. Despite some of my fellow earlier commentators' impulse to incite a praxeology v. empirics riot, I beleive applied theorizing to be one of the most important competitive advantages of Austrian economics and sound economics in general. Applied theorizing is simply the task of using theory to explain the world around us, that's what theory is for after all. On this margin Jeff's writings are always gems, which leads into the the second margin which Tucker always seems to impress me on; his willingness to never remove his economic lenses. In a true econo-geek fashion, Jeff sees the basic principles of economics in everything from his shoe selection, shaving routine, to his olive theivery. In this sense he is a true exemplar of spreading the economic message. Economics is not just a drawer of useless platitudes and formalistic assumptions it's a way to see the world around you and a perspective with which you can gain understanding about the complicated problems that the world presents.
Published: May 1, 2006 9:44 AM
"Not ready to declare the theory a bust, it was time to interview people who watch this bar all the time: the baker and the wine salesman."
This doesn't sound like applied theorizing to me. It sounds like Positive Economics.
Published: May 1, 2006 10:03 AM
I had no idea Jeff was a thief. Interesting. It's ok, though. Really. Lots of my friends are going to hell.
Published: May 1, 2006 12:46 PM
Hey! This is a "free rider" problem in action!
It also demonstrates the basic flaw of arguing that "free riders" will make a voluntary public effort fail.
The store owners certainly know what their sales of olives were before creating this olive bar. They know their sales afterwords, the cost of having the bar and their profits both ways. The "free riders" exist, but they are known and accounted for. The voluntary nature of the exchange succeeds.
I would run the experiment just a bit further if I were running the olive bar: I would try a sign saying, "Please keep sampling to a minimum." Who knows?
Published: May 1, 2006 1:41 PM
Hi all,
Where are all the fools on this one? There are usually a few people who post something really foolish but I didn't see any today. I miss the humor.
Anyway, I wanted to mention something about the elimination of taxes, or, in the spirit of the olive bar, evasion in and of itself. People are afraid that crime rates will increase if taxes are eliminated and replaced with voluntary government support. They may be just as afraid of losing the "perks" their own special interest groups have gained, but they'll never openly admit that as an argument against the elimination of taxation. But they are afraid of losing "law and order".
So Jeff, and everyone else, let's have more applied theorizing and positive economics and whatever you want to call it that points to people conscientiously following certain "laws" of behavior (that have no legal enforcement whatsoever) simply to maintain order.
Hmm... As I try to think of one, I see that legislation has "crowded out" most of the good nature that would usually be cited as the reason for cooperative behavior. Perhaps I should insinuate myself into groups of people who consider themselves above the law... Congress here I come!
Published: May 1, 2006 5:13 PM
On the empirical issue, of course observation is great for some things but not other things. The case I looked at does not involve praxeology: e.g., I wasn't trying to discover if more olives sell at a lower price than a high one all else equal; I was just trying to discover whether the decision to sample is related in some way to the decision to buy, the results of which maby illustrate some interesting psychological principles but they prove nothing about economic theory that is universalizable. In any case, I was fun to spy on people at an olive bar, and interesting to think about the relationship between clear vs. ambiguous rules.
Published: May 1, 2006 9:55 PM
Jeff,
I'm not even sure this part is correct:
"Our team of researchers had the theory confirmed: the bar's profitability—which is a measure of how well it serves the public—is related to its shades of grey concerning the legitimacy of sampling from it. We also found that one customer cited an authority for olive sampling: a guy on the Food Network actually recommends that people do this!'
"Clearly, the rule ambiguity here is deliberate but it serves a larger social goal of bringing us what we want. Yes, there are those who take advantage, and there is some slippage. But the appearance of generosity, combined with people's sense of fairness, ends up being quite profitable."
In fact, I doubt that the designers of the olive bar were even thinking much about "ambiguity."
I just came from a Whole Foods store where cheese was cut and displayed with toothpicks. No ambiguity here. The toothpicks cried out "Try the cheese." I tried some of the cheese, liked it and bought. Of course, nothing goes as well with cheese as grapes. I could have used a few grapes just then, but the grapes were wrapped in breathable plastic so there was no ambiguity about the message on grapes "Don't Pick the Grapes."--Just the opposite of the message with the toothpicks and the cheese.
In fact, my guess is that instead of "ambiguity" as being the key to the olive marketing plan. It was the sampling of unique olives. You are much likely to buy what you know or can sample.
That's why the grapes were packaged for non-sampling and the cheese was available for sampling. To a great extent, a grape is a grape is a grape, no sampling required. Cheese and olives are not all the same. Put some samples of good stuff out, with a pleasing display, and you may increase sales. And non-buying olive thieves are just a cost of doing business.
You futher state:
" I was just trying to discover whether the decision to sample is related in some way to the decision to buy, the results of which maby illustrate some interesting psychological principles but they prove nothing about economic theory that is universalizable."
I don't think you proved this psychology stuff either. What if some people who sampled didn't like the taste of these particular olives and you witnessed no one buying the olives after being sampled? What would that prove? What if the Food Network show that recommeds tasting olives just aired in your area? You would have lots of olive tasters that would probably actually buy olives.
Neither of these very real and opposite possibilities have anything to do with ambiguity.
There are just too many variables for your now "psychology model" to prove anything. You don't know many many potential influencing factors.
And who said empircal studies can tell you whether certain actions are "related" by simple observation? Hayek is turning in his grave.
Published: May 1, 2006 11:53 PM
Nothing profound to add here, just a nitpick.
Deep Theory wrote:
I don't believe this to be correct. Grapes vary widely in flavor & texture. There is only so much you can tell visually. The bagging of grapes is to capture sales of loose grapes. Before bagging, grape handling resulted in more loose grapes that were never sold, of were later shrink-wrapped & sold at a discount on a "reduced" cart. Now all the loose grapes resulting from transport, prep-room handling, & customer handling are bundled for sale at full price.
Published: May 2, 2006 9:14 AM
Elf,
But the cheese that is sold is wrapped also. Unlike the sample cheese.
Thus while there may be many reasons to wrap the grapes, clearly grocery stores see no reason to leave sample grapes....and I would think that grocery stores therefore consider the prevention of the sampling of grapes as a plus to wrapping them.
Published: May 2, 2006 12:36 PM
What a GREAT article. I think Deep’s devil role is not very convincing though. I for myself am sure Mr Tucker is right. The vendors knew perfectly well the ambiguity as they consciously explained it to him (no observation here, mere conscious decision).
Excuse my disagreement Deep: really if you think “grapes are grapes� and therefore wrapped in foil either yoou are a beer drinker or just doing contradiction gratis pro deo. (no offence, I love a good beer, but still, there’s more on the horizon…).
As for cheese being handed out, or wrapped…: oxygen is the major alteration factor for cheese in a warm surrounding, hence the hermetic wrapping.
“..And non-buying olive thieves are just a cost of doing business…�
Sure, but can you deny marginal profit is clearly secondary to the service quality in some business models… ? In this olive bar case, service quality spells “Freedom of choice�. The point is that freedom of choice has different levels of quality. Freedom of choice is a moral decision, giving its whole meaning to humanity some people say. It’s an unreachable ideal; it is not just a component of free market economy.
If you let any single buyer pay a tax on illegal copyright infringement for every cd-burner sold for instance, he still clearly has the right to refrain from buying the device… and yet, it isn’t the same freedom of choice as for you to in front of your PC, to refrain from producing and selling 1000 “illegal� copies of Madonna’s latest hit.
Published: May 3, 2006 9:30 AM