Wednesday, September 10, 2008

The Cost of a Free Dinner

Let’s say you’re in a casino gambling and an employee walks up and says “I see you’re not having a good day. Here’s a voucher for you and your wife to have a free steak dinner. You can go right now. Enjoy.” This is a real possibility at Harrah’s casino in Las Vegas. This is a very kind gesture, but what is behind it?

Yale law professor and economist Ian Ayres answers this question in his book, Super Crunchers. The ability of computers to gather vast amounts of data about our actions and choices has given rise to decision-making based on data analysis, called super crunching by Ayres.

To see how super crunching works, let’s look at the case of Harrah’s casino. Like any business, Harrah’s would like to maximize profits. To use super crunching, Harrah’s began by collecting data about the gambling patterns of their “total rewards customers” who use swipeable electronic cards to identify themselves while gambling. Then Harrah’s used a method called regression on the data to see what factors lead to higher revenue per person over time.

There is no need to guess which factors are most important for profitability; the data analysis figures this out. Harrah’s determined that people tend to have a “pain point.” If they lose too much money in a weekend, then they don’t have fun and may not come back.

This pain point depends on income and other factors, and the regression analysis allows Harrah’s to guess each customer’s pain point from personal information collected when the customer card is created. When a customer approaches the predicted pain point, Harrah’s intervenes in some way, such as offering a free steak dinner. So, the free dinner is all about increasing the odds that you’ll come back and lose more money in the future.

So, what is your reaction to all this? Is Harrah’s making people’s lives better or worse? Some people have no problem with this sort of personal data collection, and others are horrified by the invasion of privacy.


  1. I don't think I could ever be horrified if a company benefited from personal information that I willingly gave them. It is one thing to surreptitiously gather information through a super fine print EULA (a la Google Chrome) and completely another thing when I fill out a form with my name, age, address, income and whatever else they're asking for.

    If you don't want your personal information being used don't give it away for a free dinner.

  2. Nerd Money: Good point. I avoid loyalty cards partly because I don't believe that the points will really amount to anything and partly because I have no desire to help companies track the minutia of my life. If I do choose to provide a company with personal information, I shouldn't be surprised if they use it.