The economics of credit card roulette

A few months ago, I went out to dinner with two friends and a few other people I’d never met. When the bill arrived, one of the new guys piped up with a question. “Anyone want to play credit card roulette?”

The game was new to us, but he was quite a fan. The idea is that when the bill comes, instead of dividing it up everyone drops their credit card into a folded up napkin. The cards are mixed and someone pulls one out at random. The unlucky person whose card is drawn pays for the entire meal; everyone else gets off scot free.

The guy was eager to play because he’d lost the last time and wanted to start making up for his bad luck. Some of us were a little wary, but soon everyone gave in to peer pressure and dropped their cards into the napkin. With six or seven of us there, the odds of losing were pretty low. But the loser would suddenly see his inexpensive dinner transformed into a pricey night out.

The napkin was rolled up, the cards mixed, and one selected. And the loser was… the same guy who suggested the game! Ouch. That was two losses in a row for him. And my friends and I never saw him again, so we scored free dinners without ever having to risk payback.

Recounting this story to another friend, we got into a debate about the wisdom of playing credit card roulette to pay our restaurant checks. He was in favor, I against.

His argument was that playing roulette is efficient because it avoids the hassle of dividing the check. Assuming that the same group eats out together often and that everyone buys meals of roughly the same price each time, the long-run costs of dining out would be the same as if they always paid individually.

I countered that our individual behaviors would change if we knew in advance that we were going to play credit card roulette. When I’m paying my own way I often decide to forego a $2 Coke in favor of a free water, or a $6 beer in favor of a $2 Coke. But if the risk of paying for the drink is spread among a group of people, I might as well order it. Over repeated games, if everyone thinks the same way I do, I’ll end up paying for the drink just as surely as if I were covering my own check each time. But at the individual decision point, my expected cost is just a fraction of the full price of the beverage.

Decent social sense would prevent anyone in the group from outright abusing the system by ordering an expensive steak when everyone else is getting a burger. But prices would likely creep up in other ways, as everyone’s appetizers and drinks become “normal” parts of the meal instead of occasional indulgences. Optimally, I might want to spend an average of $10 per meal and skip additions to the main course. But trapped in the incentive structure of credit card roulette, the optimum won’t be an option and I’ll end up paying $15 per meal to cover various extras.

So my friend was incorrect. Yes, in the long run, we will all pay the same amount on average. But we’ll be paying more than we would if we were paying individually. We won’t maximize our economic efficiency.

The best time to play credit card roulette is when you can spring it on unsuspecting companions you’ve never met before and may never meet again. Then you can bring it up at the end of the meal, too late for them to adapt their orders to the new incentives. You, however, can order up if you think you have a good shot at enticing them into the game. If you win, you’ll get a free dinner. And if you lose, you’ll be fondly remembered on a lucky winner’s weblog.

Those who like to gamble can avoid the escalated costs that come with repeated games by playing credit card roulette roulette. In this version, whether or not the group draws credit cards depends on some low probability event occuring. For example, your group could roll a die at the end of every meal and only play credit card roulette if a six comes up. You’ll still get the thrill of risking the big check one in six times out, but the probability of playing the game will be low enough as to not effect what individuals will order since they’ll be paying for their own meals 5/6ths of the time. You’ll also be a big dork who carries dice to dinner.

Related: As in dining, as in politics. Passing costs on to friends encourages some restraint. But passing costs on to millons of strangers is a whole different story. To see why the Tax and Spend Cafe is such an expensive place to eat, read Russel Roberts’ classic essay, “If You’re Paying, I’ll Have Top Sirloin.”

[Cross-posted on EatFoo.]


7 thoughts on “The economics of credit card roulette”

  1. Pingback: Eat Foo
  2. Technically, even if you only end up playing roulette 1/6 of the time, there is still an incentive to spend more, although the magnitude of the increase is diminished. The marginal increase in spending goes to 0 as the probability of playing roulette goes to 0. But of course, if you get too close to 0 the game is no fun.

    Given the size of my appetite, I think I would be in favor of this game.

  3. When I go out for dinner with friends, we prefer to have one person cover the bill. It does avoid unnecessary confusion when dividig the bill. Who ever has the right change? Plus the last person to put money in usually gets away with paying less. Next time we go out for dinner, I may suggest some credit card roulette.

  4. Oddly enough, if I know someone else might be paying for my meal I’m more likely to forgo the expensive drink in favor of water, screw the appetizer, and to order a cheaper entree. I’m much freer with my own money than with someone else’s. But maybe I’m just weird.

  5. Are the economics any different then the practice of 6 friends each paying one 6th always? In terms of greedy behavior, every week encourages similar over spending, but the ultimate cost is loss of friends so this behavior is unlikely. How does the lottery part effect the NPV?

  6. What seems to be missing form this blog is the recognition that credit card roulette is a game of chance. Whether played with a close pairing of 2, where my heterosexual young good looking friend lost or between the group of 7 (where I lost) the whole thing is about chance. One cannot be limited by the rules of economics but give into the game and the risk that chance. The whole game is not a money saving tip but is a game within which there can be no losers as there can be no loser as you play with close friends. Life is not a spread sheet, live, laugh, love and learn.

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