The Liar’s Tax: Should You Correct Checkout Errors?

I just got back home from Wegmans. Going over the receipt, I noticed that the cashier neglected to scan my coffee beans, so my espresso is free for the week. (See footnote.) Small victory.

Now, I felt a little bad when I noticed the error. I blame my mom for this. But then I started thinking–should I really have any moral obligation to correct the error?

The answer may appear trivial. My mom would say yes without any second thought. However, consider this:

  1. Register errors happen.
  2. Retailers knows this.
  3. Therefore, they increase the prices of these goods by some small amount to recover their losses. Call this the liar’s tax. (I name it this not because the liars pay it but rather the presence of the liars forces retailers to include it in the price of goods.
  4. If I correct the error, then I am essentially being double taxed, once because I have to pay for the good whereas a liar would not and twice because I have to pay more for the good than I would have to if liars did not exist.

So, I ask again: do I have a moral obligation to correct the checkout error? If I do, I am penalized twice for being an honest man. If I don’t, should I feel guilty?

Here’s how society should resolve the problem. Let’s begin a social norm not to correct checkout errors. Never ever ever ever ever. This will increase the liar’s tax to compensate for all of the errors. However, now liars and honest people are paying the exact same for the good in expectation. Retailers will complain that they are losing money by having no one correct the errors. But that is bullcrap–they are collecting that lost money through the liar’s tax they collect on all correctly processed sales.

Footnote: At Wegmans, you must weigh and label your own coffee beans. In the two plus years of living in Rochester, the label maker has worked effectively exactly twice. Usually, the label sticker fails to automatically come off the back paper, so you have to peel it for yourself. Today, the label printed at an angle where the barcode was supposed to go. So the cashier probably scanned it, but the register didn’t take it, and the cashier failed to notice that. But you’d think a business operation as large as Wegmans could develop a solution to a problem that has been going on since at least summer 2010.

7 responses to “The Liar’s Tax: Should You Correct Checkout Errors?

  1. A slight variation. A friend’s father was killed by a train at an ungated rural crossing. His mother was told by many to file suit against the train company under the logic that the railway budgets for this type of event – weighing the cost of settlements versus the cost to put proper gates at each crossing. Thus if you fail to sue the railway they get a two-fer off the death of your loved one.
    BTW – she didn’t sue because she believed it was her husband’s fault for not checking more carefully.

  2. “Therefore, they increase the prices of these goods by some small amount to recover their losses. ”

    Woah, woah, what? This only works if *consumers* know the risk of cashier error and take it into account. I don’t think that’s very likely– who could possibly have access to any kind of reasonable estimate?

    • Why do consumers need to know the risk of cashier error for the retailer to increase their prices?

      • If both sides know that the “actual price” is tilted x% in favor of the consumer, then they’ll sell at the original equilibrium nominal price adjusted by that amount.

        But if the cost is known by the supplier and not the consumer, the supplier will produce less due to the cost. However, this isn’t a price increase that “makes up” for the difference– the supplier is still making less money. (Ie, instead of stopping where mb = mc, the supplier will stop where mb = traditional mc + transaction error costs.) Thus, when consumers are “honest” and reduce the cost, social gain is maximized. (If consumers somehow can calculate these costs and take them into account then being honest doesn’t hurt or help anyone accept the particular consumer and particular supplier.)

        Think of it in terms of the original tax analogy: Excise taxes raise prices, but the raise in price does not compensate the supplier for all the lost revenue.

      • The tax is non-distortionary because it would be set to the amount which makes the price in expectation equal to the equilibrium price with perfect cashiers. So, if your product costs $1 and your cashiers miss an item with probability 1-p, the cost of the item goes to 1/p = 1 + (1-p)/p, where (1-p)/p is the liar’s tax. Note that the customer expects to pay $1 for the product, which is the equilibrium price. (Hidden assumption: we’re living in risk neutral world.) Liars trivially would not want to correct errors. Honest people have no reason to correct the error here either, since the only way they pay the equilibrium price in expectation is for them not to correct errors if they reach that stage.

  3. Right, but my argument is that that only works if consumers actually know what the risk is and take it into account. I’m arguing consumers actually expect to pay the nominal price, not the real one. So if p = .9 consumers will think they’re being forced to pay about $1.10 when in real terms they’re on paying $1.00. Since that will cause less consumption, there will be less quantity supplied. The distortionary effect comes from the fact that both sides see prices differently. If all consumers had a “gentlemen’s agreement” to look out for missed products, that would eliminate the distortion. Alternatively, consumers could just figure out how to accurately take the probability of mistakes into account, but I think this would be a lot harder to do.

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