Free!
Feb
03
Tyler Cowen posted a blog today discussing one of the chapters in Predictably Irrational– the chapter on Free!
A lively discussion emerged from his posting, with people proposing many alternative accounts for the findings. Most of these alternative accounts are interesting (transaction costs, gifts, social norms) and they are ones that we have tested and have found that they cannot account for the phenomenon of Free!
For the complete paper describing many of the experiments see this link, or see Chapter 3 “The Cost of Zero Cost Why We Often Pay Too Much When We Pay Nothing”
My latest book, The Upside of Irrationality, explores some positive and some negative ways that irrationality plays out in our lives.
Dan,
Given the Super Bowl outcome, it might be a good time to blog about “choking under pressure”…
Dr. Ariel,
I have not read your research paper, but only read 2-page PDF at Amazon.com. If that correctly represents your thoughts, I would add transactional costs. I included that in my own blog post (see micropayment part), which was for a different ‘free’ topic.
http://hyokon.blogspot.com/2008/02/in-addition-to-free-part-2-how-to.html
I am also interested to know what your perspective on current ‘free’ business model issue that are talked about among many popular bloggers.
It is a very interesting book you have written, but I wonder why you always in your experiments involving use the absolute difference between two different outcomes instead of the relative difference. Most of the marketing research I have seen on price changes comes out with the result that a pricereduction has to be above around 10 % in order influence behavior significant, meaning that it is the relative difference that counts. (of course even in Denmark gasoline prices are the significant exception to this rule, where a price reduction of less than 1 % can make us move on to the next petrol station)
That could also explain why FREE is so attractive an offer, because the difference to even the cost of one cent is a limitless percentage. However I wonder if that might change. I now receive so many Free offers in my inbox, that I more or less automatically delete any mail with the word FREE in the subject line;-))
Sorry the word “money” are missing in the second line after “involving”
Dear Dan,
Thanks for the excellent book.
A few comments:
-would you care to define “rational”?
-regarding the free “Kiss”, why assume that people are irrational, rather than the economist made a mistake? Isn’t it simpler to understand people’s choice by associating pleasure with receiving something free? This is quite different than a payment of one cent (which is a small displeasure).
-what is a pleasure unit? That makes no sense at all. One apple minus one orange equals two bananas…