August 13, 2009


"It is criminal to steal a purse, daring to steal a fortune, a mark of greatness to steal a crown. The blame diminishes as the guilt increases." -- Schiller
I was sitting in the City Cafe (accent intended) Bakery (held in slightly-above-average esteem by the professor who brought Waterloo's CS frosh such delights as Scheme), taking a quick breakfast with my brother; this quote was written on their blackboard. City Cafe is an economic enigma. They have no cashiers, opting instead for a self-serve honour-system model; you deposit your payment into a bus fare box (Cleveland Transit, I'm told, although I've never verified this) before leaving.
Question of the day: why does this work? By traditional economic theories, the dominant strategy is to eat and run. One theory holds that this is a form of the tit-for-tat strategy: the City Cafe Bakery places trust in its customers, who then feel compelled (perhaps because reciprocity helps maintain social norms) to pay. Another possibility is that the players are maximizing self-interest according to a different payoff function. There might be quantifiable reward in keeping the bakery open or in appearing honest to one's friends. (It is notable that customers often leave tips - maybe it is psychologically easier to tip when the register and tip jar are combined into one receptacle!) There is also the novelty factor; by following an unorthodox business model, they generate a certain amount of word-of-mouth buzz.
(According to Schiller, your best strategy is to grab everything in the bakery and run - that way, you minimize blame!)

Denouement (again, accent intended) comes from the French noeud for knot; the literal translation is "unknotting". I'll leave that open to interpretation.

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