Irrationality at the pub
A scenario from the pub tonight: My friend ordered a Paulaner. The waitress brought a Staropramen by mistake. She was about to take it away and replace it, when he offered to pay half-price for it to save the cost of throwing it away. What decision should she make? Accept the offer and avoid the wastage, or bring a new beer and charge full price? The considerations are surprisingly complex. A simple one is the cost of the beer. If gross margins are low - that is, if beer costs the pub more than half of what it charges the client - it is more profitable to sell the Staropramen at half price and at least get some revenue than to throw it away. On the other hand if beer is very cheap then it's more profitable to chuck the old one and charge full price for the new glass. Note that the consideration here is the wholesale price of the Paulaner which would need to be poured, not the Staropramen which would be thrown away - that has already been poured and is a sunk cost. Ass...