How do you split a dinner bill with friends so as to optimize long term happiness?

Via Dan Ariely’s excellent book Predictably Irrational:

Although identifying and fighting the allure of free! is important in order to avoid traps while we are making decisions, there are also some cases in which we can use free! to our advantage. Take, for example, the common experience of going to a restaurant with friends. When the server drops off the check at the end of a meal, people often scramble to figure out the norms for payment. Do we each pay for what we ordered? Do we split the bill evenly, even if John had that extra glass of wine and the crème brûlée? free! can help us solve this problem, and in the process help us get more joy from dining out with our friends. The answer, as it turns out, is that one person should pay the entire bill, and that the people involved should take turns paying over time. Here is the logic: When we pay—regardless of the amount of money—we feel some psychological pain, which social scientists call the “pain of paying.” This is the unpleasantness associated with giving up our hard-earned cash, regardless of the circumstances. It turns out that the pain of paying has two interesting features. First, and most obviously, when we pay nothing (for example, when someone else foots the bill) we don’t feel any pain of paying. Second, and less obviously, the pain of paying is relatively insensitive to the amount that we pay. This means that we feel more pain of paying as the bill increases, but every additional dollar on the bill pains us less…So if we are dining with others, we are happiest when we pay nothing (free!); we are less happy when we have to pay something; and the additional dollars we fork over cause us a smaller and smaller additional amount of pain as the size of the bill increases. The logical conclusion is that one person should pay the whole bill…The general point is this: we all love getting our meals for nothing, and as long as we can alternate payers, we can enjoy many free! dinners and derive greater overall benefit from our friendships in the process…

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