A Prospect Theoretical View of Clubbing

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Around Bocconi, few topics are more relevant than economics and clubbing. Yet, they are seldom brought up in conversation as complements to one another. The following article is a not-too-serious attempt to apply the most cited economic theory – Kahneman and Tversky’s Prospect Theory – to Bocconians’ preferred weekend pastime – clubbing.

Let’s begin by presenting vignettes of two clubbing venues:

The first, venue A, is well-known around Milan. Mostly everyone has been there or at least heard of it. It is a large and glamorous scene, adorned with art-nouveau style décor, chandeliers, exotic dancers, and glitter as far as the eye can see. In a word, luxe. The music is chosen for its wide appeal and recognition. Theme, musicianship, production value – all these have little, if any, importance. It is, relatively speaking, expensive.

The second, venue B, is smaller and less recognized. It attracts a niche crowd but maintains wide diversity within that niche. Entry is free and the little revenue they generate is from the sales of beverages at prices marginally higher than retail. This leaves little money for décor, forcing them to focus on music, where they truly shine. Every event has a specific theme revolving around new and unique music, with a focus on dancing and live performances.

By now, each reader will have made up their mind about which they prefer. Both choices are fair and deeming either one as ‘wrong’ would be to venture into dangerous normative territory.

Still, some theories can lend themselves useful to understanding the differing psychology of those attending venues A and B. In our case, this is prospect theory, a staple of cognitive psychology and behavioral economics developed by Daniel Kahneman and Amos Tversky.

Prospect theory stems from the real-life observation that individuals react differently to potential losses and potential gains. They do not evaluate their position in absolute terms but as a function of their specific situation or reference point. The principle of reference dependence skews the traditional view of risk aversion into the asymmetric concept of loss aversion (figure 1). In brief, prospect theory stipulates that our fear of losing is greater than our joy from gaining.

The critical implication is that individuals making decisions from a reference point of potential loss will be increasingly risk-seeking and prefer solutions with lower expected utility so long as they have even a slight potential to recuperate their losses.

Now, what does this have to do with clubbing?

Two more vignettes (and brutal generalizations) will help convey the point:

You walk into venue A with a balance of -€50 as your reference point. Beginning from a position of relative loss requires that this loss be compensated for with utility from other sources lest this be an unsuccessful night. You begin to dance but find that you are perhaps too sober. Head for the bar: one cocktail and a few shots later, you feel ready. Your balance is -€100, deep in the red. Prospect theory suggests you will become increasingly risk-seeking, overestimating the odds of something unusually beneficial occurring. This is where the danger begins. Many people are neither good at dancing nor do they derive much pleasure from it, which means dancing as compensation is not viable. Clubs have loud music, as they should, but this means socialization through conversation is also not viable. You post some stories on your Instagram. This makes you feel good but once you realize most of your friends are there with you, have posted the same stories, and that generally no one cares, you stop feeling so good. Perhaps you see your last resort as seeking out a sexual encounter. Very dangerous territory. The risk-seeking tendencies of those in a position of loss interplays with the effects of alcohol and becomes a recipe for violence, assault, and harassment. A danger to others and to oneself.

To clarify, this is not an absolution of guilt. Alcohol lowers one’s inhibitions, but it does not change their morals. Inebriated individuals do nothing that that they would not at least think about sober. The urge to compensate for the large amount spent on a night out tends to push those thoughts to uncanny extremes, and unfortunately this often translates to primitively vile behavior.

On to the next.

Venue B, you walk in for free. Everyone’s reference point, including yours, is net zero. The music is new and foreign but has groove and you begin dancing. You look around and do not see many people taking videos… odd. What are they doing? Well, dancing, singing, and enjoying the music. Simple as that. No one cares about the décor, the presentation, the status – they go to clubs for music and dance. After all, that’s what clubs are for. Their laid-back attitude is a manifestation of prospect theory’s risk-aversion. No one feels any urgency to do something to make their night worth it – their night was worth it from the get-go. You spend the night unbothered. No one touches you, approaches you weirdly, or shoots ominously flirtatious glances. The strangers you dance with do not take it as a signal that you want to take them to bed or add them on social media. Like venue A, you are perhaps too sober and choose to down a few drinks, your balance drops to -€15, whatever. Now you feel good and return to the dancehall, find a stranger and dance with them, feel chemistry, and let the night unravel in magical ways.  

So, what is the main message behind these speculative generalizations? To stop clubbing? Definitely not. To change one’s clubbing destinations? Perhaps, but not necessarily.

What I believe is of paramount importance is that everyone understands the functions of a club. They are primarily places where people go to dance, drink, and enjoy themselves in whichever way they prefer, without feeling that they are in danger. When you pay for entry, that is what you deserve: entry. When you buy a drink, that is what you deserve: a drink. Nothing more, nothing less. The same drink being more expensive at venue A than at Esselunga does not entitle you to anything more.

Too often, attendees of higher-end clubs pay to the point where they begin believing they deserve something more, and then become excessively risk-seeking in their pursuit of that extra something.

So, do what you want, go to expensive clubs, spend hundreds, even thousands, but understand what a club is, what it provides, and that the money you’ve spent entitles you to nothing more.

Avoid needlessly risky behavior, and if you feel like you’ve made a loss, try to dance your money’s worth. If you don’t enjoy dancing, then perhaps you’re at the wrong place.