Free!
In one of our projects, Kristina Shampanier, Nina Mazar, and I examined whether our reaction to Free! is just a rational reaction to a low price (a very low price) or if it is an irrational overreaction to Free! We carried out a set of experiments in which we measured not only what people chose but also what they gave up in the process. By doing so we were able to show that Free! can tempt us so much that we are willing to forgo a really good deal for a mediocre one simply because it is Free! For now let’s skip the experiments and consider the following thought-experiment:
Consider how long you would be willing to stand in line for a free Ben & Jerry’s ice cream cone. Let’s assume that your answer is 20 minutes and that the cost of a Ben & Jerry’s ice cream cone is $1.45. Now answer this: would you be willing to stand in line for 20 minutes for $1.45 in cash? No way.
This is exactly what the experiments showed; when something is Free! we get excited and as a consequence we are willing to give up better deals — not to mention our time, money, etc.
But you also need to ask yourself, how long would you be willing to stand in line for a Ben & Jerry’s ice cream cone that cost $1.45. Let’s say that answer is 5 minutes. Then ask if you’d be willing to stand in line for the difference (15 minutes). I’d still say no — but you shouldn’t forget that even when purchasing something for cash, you still have to wait in line.
LIS!
Too funny.
This kind of response will always be a moving target. If you have time to burn–say, waiting for a suit to be altered…..or waiting for jewelry to be cleaned at a nearby jewelry store–then those minutes waiting for a free scoop cost you nothing.
Time is money unless you happen to have too much time on your hands.
Then it is just extra time to waste another way.
Yeah, but the point is why would we be willing to wait in line for the $1.45 in ice cream, but not for $1.45 in cash, which we could do anything we wanted to with?
I would only wait in line for Ben and Jerry’s “Pistachio Pistachio” or a Starbucks Frappuccino.
However, the larger point is that most Americans are gluttons. About 65% are overweight or obese.
Pigging out in the buffet line when they can go back for seconds, thirds, etc…..makes them think they are getting to pig out for “free”.
It’s an emotional response, IMO.
Debrah, again you’re missing the point here. The point is to emphasize the irrationality of waiting so long in line for an ice cream worth $1.45 but not being willing to wait in line for the $1.45 in cash.
By all accounts, getting $1.45 in cash should be better, but because it doesn’t have the “free” ring to it people aren’t interested.
Dan, I think the ice cream stand is a poor example; it’s explained by a (rational) inference story (a la Becker’s hot&cold restaurants), though I don’t think your chocolate results are.
I was walking in NYC last year with some buddies and we saw a very long lineup to a concert venue. I asked one (attractive) girl, “What are you waiting for?” She looked me up and down, then said, “Talib Kweli. (beat) What are YOU waiting for?”
I have never lived this down.
WE’re willing to wait in line for the icecream cone, but not the $1.45 because the ice cream cone is “worth more” to us gthan !.45. that’s why we’re willing to pay $1.45 for it, because we feel we’re getting more benefit than we’re giving up. At the same time, when the cone is sold for $1.45, the seller feels they are receiving more than what the cone cost. Both sides feel they’re getting at least, and usually more, than what they’re giving up. The seller receives a profit that can be calculated relatively eas; the buyer also has a “profit”, which is the difference between what he aid for the cone, and what he would be willing to pay for a cone. This “profit” is very difficult to calculate, but can be estimated fairly easily by running up the price of the cone until the buyer turns away.
Perhaps that is because in one case you are getting only the cash and then need to again wait in line somewhere to spend it. But waiting in line for the final product raises its “market value.” Since you would always have to wait in line for a cone, say 5 minutes, then perhaps the 20 minutes line appears shorter because a step is removed.
Dan,
I have enjoyed your book though this example and many of your examples that you provide in the book (ala Hershey kisses) are dealing with insignicant amounts of money. Another explanation for most of these experiements(including this one)is that some amounts of money aren’t worth worrying about. For example, I find it how to reconcile that the MBA students (at MIT or Duke) are paying 100K to the university but you are executing tests at about $0.50 or even in the pennies.
I have a feeling that everyone acts more rationally as the sums/money at stake become more significant (to the person). For example, I think waiting in line for an iPhone or the $300-400 it costs for the iPhone would result in much more ‘rationality’ for most of the population.
I love your thoughts on how we make decisions and just read the article about you in the NYT’s.
I’d add that so much of this is tied up with our fear of change and risk taking… Here’s a link to an article about you on Success Television:
http://www.successtelevision.com/index.php?option=com_content&task=view&id=5382&Itemid=43
Excellent points made by Jeff.
And since you brought up Duke, I’d love to see a post that deals with the lacrosse hoax. Duke keeps digging into its deep pockets to pay millions just so the discovery of the administration’s action can be keep from public view.
That’s not going to happen. The civil suits will reveal much more than is already known.
How much money is one willing to pay to avoid facing reality?
Duke will be “waiting in line” for quite a while to get its reputation back. Just ask alumni.
For an increase of $15,000/yr. in his pension—(he was running for office to stay on the job until his pension maxed)—disgraced, disbarred, and former district attorney Mike Nifong engaged in criminal behavior….willing to concoct a case when he knew the accused were innocent.
Was a mere $15,000 a year worth it for him?
Was following a diseased politically correct, identity politics-based agenda worth such a disgrace for Duke University?
The high stakes arena is where the real ball game is played and reveals just how irrational some can be…..’til the end.
“I have a feeling that everyone acts more rationally as the sums/money at stake become more significant (to the person).”
Exactly.
When you are spending other people’s money as Duke’s administration is, you can be quite “predictably irrational”.
One can be as zany as one can afford to be.
Related perhaps, see nytimes.com, Dallas Morning News and others (Search Google News for “free lunch”.), a free lunch is not “cool”. Poor high school kids would rather skip lunch than accept the free government subsidized lunch.
There are some sentiments expressed in the blog that people get more rational when the sum of money increases.
This is a reasonable and common assumption, but it is not one that has much empirical support. In general when we do experiments with much higher payments (and we usually do these in India where we can pay people amounts that are substantial for them but affordable for us) we don’t find much difference.
Now, I did not run the zero price experiments in India so this is just a conjecture. On the other hand we conducted some experiments where we paid people money for performance (thinking, problem solving, memory etc) and the more money was on the line the worse they did!
So, while I am not sure if doing the zero price experiments for more money (and we used values up to $20 in the paper), in general it is not the case that more money always makes people more rational.
The other point about free lunch being not “cool” is also very interesting (basically kids do not take free lunches in school because they think it is un-cool so they go hungry)
Clearly free is complex and it has many aspects, including inferences about the quality of the product and sometimes about the “coolness.”
The point of he research we did was to show that there is one aspect in which free is very different from any other price and that we just get a bit too excited about it
Dan
Thanks Dan for the additional comments related to the tests in India with amounts that are more meaningful. Interesting.
I do like the evidence that free/zero is special – the amazon example in France with the 1 franc vs. free shipping is superb.
Now another step though might be that many of the base 10 numbers are special 1, 10,100,1000 as evidenced by pricing that is often $9.99, or everything is $1 dollar stores etc … I am sure that those numbers also result in abnormalities in demand curves. However, does Zero/free have even more abnormality than other of the ‘special’ base 10 numbers? Or are the abnormalities about equal across those base 10 numbers?
I might have to wait until the next book for that answer … but I am interested.
Do you have an email address? I wanted to comment on your “Door” game, but there appears to be no way on your website to contact you unless you happen to read these comments.
Your Door example is terribly flawed, btw. The instructions are misleading as they do not accurately describe the choices that are actually given.
Specifically, you say that the doors have a “certain” distribution. You go on to indicate that the task is to find the door which will give the greatest reward. In combination, these two instructions give a strong implication that, once identified, one door will consistently (“certain”) have higher numbers than the other two.
Since the numbers seem to be completely random, your conclusion that people are trying to keep their options open seems to be without basis. I would hazard a guess that most people try each of the 3 doors on the first pass, then an additional click or two on the highest scoring door. At this point, the randomness of the “certain” distribution becomes clear and the remainder of the clicks are dumped into whichever door is open.
I don’t think the shrinking has anything to do with it at all. On the second pass, people are simply aware that the numbers are random, so they open any one door and use all of their clicks on it. The first pass simply teaches people that the doors are not, in fact, consistent in ratio.
Just my $0.02
I do enjoy your site quite a bit. Your endurance and attitude are truly inspirational.
Peace,
Dan
I’m not sure I like the idea of conducting tests that give marketers insight, marketing is about distracting not rationally informing, but in the hope of better educating the public let me spread the good news and remind people that nothing is free. If it doesn’t cost you tender it will cost you time or both.
The *Marketing-Science Study (laugh@title) really reflects what we as a society seem to value. How you value something really depends on how you value your time at the time.
Marketing, advertisement and PR is a pushme-pullyou creature created to titillate and promote societal group think, like clipping coupons or playing the lottery, both really unnecessary and irrational, unless you win or it creates the idea of winning something by saving.
The illusion of free has created a society that is always too hopeful and caters to the thrill seeker in all of us. Yes, we are that bored. But, it is the little things that add up and express gratitude for and attention to when in dire straits.
Noting our irrationality and humanity in the article conjured up something George Bush said when asked how history will remember the war, his response was, ‘History, we don’t know. We’ll all be dead.’ There’s no doubt that our immortality plays a large roll in many of the decisions we make.
*Note in the MS study intro: 0 was first used in India – to represent nothing in the basket, no value.
hmm, my general reaction to hearing something is free is suspicion. I wonder what the ploy or catch is,or what’s wrong with the item.
The University of Chicago has two traditions– Dollar Shake Day (when milkshakes are a dollar at Einstein’s on Wednesdays) and Econ 101 with Allen Sanderson. On the first day of Sanderson’s class he informs all the budding young rational market participants that if he ever catches anyone from his class in the 30 minute line for a Dollar Shake, they will receive an “F” because they clearly do not understand opportunity costs. I can only imagine his indignation at the sight of mass of students in an even longer line for free ice cream.
How many people would pay $52 (or wage/3) for a really good ice cream cone?
but i loovvvvvveee ICE CREAM!!!
“The point is to emphasize the irrationality of waiting so long in line for an ice cream worth $1.45 but not being willing to wait in line for the $1.45 in cash.”
I’m not doubting the irrational effect of “free,” but I think there’s an unfounded assumption here that the sales price of the ice cream is the same as its value to the customer, and that the fact that $1.45 might *get* you an ice cream cone is the same as actually having an ice cream cone. If I’m waiting in line for 20 minutes (which actually I, in real personal life, am highly uninclined to do), I’d better have either a serious pleasure or a medical exam at the end of that, not a token that I’d have to stand in another line to convert into something enjoyable. It’s too distanced from the reward.
djs,
Totally agree and was about to make the same point.
I’d love to see an experiment where $1.45 was given out for free, at the end of each of these timed lineups: 10-minute, 15-minute, 20-minute, 30-minute… where would people start dropping off?
The draw of something ‘free’ is very real, but it’s not simply monetary.
In this example, it’s the value of the price of the cone, sure, but it’s also the value of all the “costs,” monetary or otherwise, that it would take to get a cone that like, plus the fun, regardless of the price you pay, of getting such a cone.
In other words, getting a really good ice cream cone is not only fun, regardless of the price, but actually getting such a cone is a significant hassle.
A real experiment would be to give people a choice, in the same location, between a 20 minute wait for a free cone or the chance to buy one for $1.45 (or whatever it was) right away. Then, you’d more or less be stripping it down to just the monetary value.
Interesting study. I was surprised by the Amazon experiment.
What do you suppose would be the result if instead of offering the Amazon certificates for 0/$7, you gave everyone a card for a $13 discount on the certificates? Would that cause participants to see it as a $3 loss to take the $10 certificate for free?
I think in the case of the chocolates, an aspect of this might be that the value someone gets from something is variable. I might eat chocolates all the time, but sometimes I enjoy them more than other times. If there’s one price for them, sometimes I will buy them and sometimes I won’t. I won’t even necessarily know the value of a given chocolate until I consume it whether it satisfies a craving or just makes me feel gluttonous. In that context, if I were to make the decision on a chocolate I will consume in the future, the risk that I might not like the chocolate increases so it may make the free option more attractive because it is essentially risk free in any circumstance.
In the case of the gift certificate, there are two risks that I might see. One is that it’s a deal that’s too good to be true. Even if you assuaged any small concern of the legitmacy of the certificates and the deal, there’s still some very small risk that I might be taken advantage of. The second risk is that even if I have shopped at Amazon before, unless I do so with regular frequency, there’s a small chance that I might not redeem the certificate. After all, redemption rates of store certificates are on the order of 85% or so (far less than 100%). So while if I were to go to Starbucks every day and would accept a $20 Starbucks card at $9 vs a $10 card for free (assuming I felt a very, very small of risk of fraud), I might not feel the same about Amazon. In the case of either concern, if there’s money at stake, then I have to accept the minor risks in context. If the $10 option is free, then it is essentially riskless.
I also suspect that it’s the one-time and unpredictable aspects of the offer that might cause people to act less rationally since it increases the risks and transaction costs of the offer (including the effort to think about the offer in the first place). Make it a standing (perhaps daily) offer and I’m sure people will act much more rationally.
But then maybe not. Do people spend way too much time looking for free parking? I know I sometimes do. But I only know what my time is worth in frustration and opportunity only after I have wasted it and not necessarily before.
Dan
I’m a bit concerned about the lack of any mention of ethics oversight of this research. (In fact, the paper is very light on methodology, so perhaps it’s just one of the details that is missing). To conduct the studies you describe must have, in some instance, involved covert videoing or observing of people’s behaviour, without their consent. Some of it apparently involved people’s children, albeit this study looks like something that any business could be doing every day.
Can you comment?
Peter (Psychologist)
It’s about that illusive “value” which may or may not be monetary. On a hot muggy day, with nowhere else to escape to, yes, I’d stand in line for that B&J ice cream cone. (Remember the days when only a few shops had air conditioning and you HAD to buy something!) However, in the middle of a snow storm, no way. Dont care if it’s free!
It also depends on the relative value of your time – it’s why some people have drivers. Their time is too valuable (on phones, dictating) to be concerned about avoiding traffic accidents. They are well aware of opportunity costs.
You used the Amazon 20 cents versus FREE! shipping as an example. I suspect, the threshold depends upon the situation.
I was going to post somthing on the Cost of Nothing (or No-thing) versus Zero Cost versus FREE! at the Oprah website with their discussion on Eckart Tolle’s book. I’m afraid they wouldnt get it. Note the difference in perception.
It’s that “Something for Nothing” prospect, versus the intense fear of loss. (It’s that fear of loss that makes it difficult for us to choose and close off options.) Why the average Joe still believes intensely in the “free lunch” in the strictly economic sense, and the success of lotteries and slot machines.
ps dheath (I assume that is Dan Heath) – loved your book too!
Dan, interesting post. Would you be interested in syndicating your content on the home page of my site? It’s an online community of finance professionals ( http://www.wallstreetoasis.com ). I could add an RSS feed that will allow me to promote your blog posts to my home page (when i think it will lead to a good discussion and/or is appropriate), but I wanted to make sure you were comfortable syndicating first. The syndicated post would have a link back to your original post. Thanks, Patrick (you can reach me at wallstreetoasis@wallstreetoasis.com if you have any questions).
I’d like to elaborate on my previous comment.
If I understand you correctly, you are proposing a combination of respondent and operant behavior to conceptualize the effects of “free.”
You state that we get excited at the prospect of free. Thus, in a respondent framework, “free” is a conditioned stimulus that evokes a conditioned response of some kind of heightened physiological state (i.e., excited).
I have a few questions:
(1) Have you conducted or are there any empirical investigations that show that “free” results in an excited state?
(2) Are there any empirical investigations showing that people behave irrationally when in a heightened physiological state? (I would guess that the answer is yes to this one)
Now for the second part of the analysis. First, we must consider how “free” results in choosing to allocate responding to “free” as opposed to not free. To do this, we must consider operant behavior. The typical 3-term contingency (ABC) in an operant framework, is really more like a 4-term contingency (MO, A, B, C) in this example (and in most examples, really). Assuming seeing “free” causes a heightened physiological state, the excited state may function as a motivating operation. The ABC portions of the contingency are rather obvious. The antecedent stimulus is the choice between the stimulus that is free and not free. The behavior is the stimulus the individual selects, and the consequence is obtaining a desirable object without surrendering any money for the free stimulus.
When conceptualizing “free” there are a number of possible behavioral mechanisms to explain consumer choice:
a. Matching Law
b. Rule-governed behavior
c. Avoidance (of punishment—i.e., surrendering money)
d. The concept of “free” as a conditioned reinforcer
e. The punishing event (i.e., cost) as the relevant consequent event
f. The failure of “almost free” to acquire stimulus equivalence to “free”
g. History of reinforcement
h. The difference in consequent events for free and not free. (That is, free involves only obtaining a desirable stimulus. Not free involves obtaining a desirable stimulus and giving up a desirable stimulus (i.e., money). In summary, free involves only reinforcement contingency and not free involves a reinforcement and punishment contingency). This concept relates to the matching law.
i. Social reinforcement (or punishment, as in your kids and free lunch example)
I suspect that the free involves an interplay of many of the aforementioned mechanisms. Additionally, relevant mechanisms may be different in different situations and different individuals.
What are your thoughts?
“The University of Chicago has two traditions– Dollar Shake Day (when milkshakes are a dollar at Einstein’s on Wednesdays) and Econ 101 with Allen Sanderson. On the first day of Sanderson’s class he informs all the budding young rational market participants that if he ever catches anyone from his class in the 30 minute line for a Dollar Shake, they will receive an “F” because they clearly do not understand opportunity costs. I can only imagine his indignation at the sight of mass of students in an even longer line for free ice cream.”
I’d object, on the grounds that I’d be reading a book (or playing Game Boy, or whatever) while standing in line, and therefore my opportunity cost is less than he thinks it is.
I hate waiting; that’s why I always have something else to do instead of “just” waiting.
I am always amazed to see the long lines at Costco gas stations. While not “free” costco gas is usually 10 cents cheaper per gallon.
I will gladly get gas at Costco when there is little or no wait, but to wait twenty minutes would worth far less than the $1.50 I would save.
Having worked at Disneyland during my college years I saw many more examples of predictable irrationality regarding everything from the tendency of people to queue into a long line when there is a second line for the same ride with no wait to people spending an extra hour of their limited visit time on going outside the park to save a few dollars on a meal.
That’s exactly what we noticed at our second hand store. We were giving away a free trinket for every purchase over $20 cuz we were having point of sell issues (not enough sales points…) the Free! offer did increase the average waiting time people were actually willing to wait
Gotta love marketing
Grace
Polish Citizenship
Dear Mr Ariely
I have just begun reading your book and have a comment on the influence of FREE. You mentioned people taking free items at conferences. I go to a annual conference for booksellers every year and many free gifts and books are offered. My experience is that some people positively raid the free stuff but many especially those who have attended several of these conferences leave almost everything behind unless there is an item they specifically want. The last time I attended I took one of the free gift bags from my own company out of politness and I had room in my suitcase. I did not take any of the many other items offered for free. The woman I was traveling with took her gift bag as well and then later gave it to an off duty security guard at the airport.
In the bookstore where I work we sometimes will offer free item B if you buy item A. Many customers will buy item A and then refuse the free item (which is often something of a reasonable value, not just junk) as it isn’t something they want. They sometimes suggest we give their free gift to another customer who may like to have it.
In regard to the candy experiment. I would never trade any amount of Hersey’s Kisses for any size Snickers bar. I love Hersey’s Kisses and hate Snickers bars.
Waiting 20 minutes for 1.45 in cash is not the same as waiting in line for free ice cream.
For one thing, once you’ve got the cash, you now have to spend time deciding what you want to do with it, followed by the amount of time it takes to acquire the good or service the cash will get you. Therefore, 20 minutes for ice cream is already better than 1.45 in cash, as long as you truly want the ice cream, because somebody has done the work of making it and bringing it close to your physical location.
Secondly, the ice cream is more desirable because it has more immediate value. The cash has only abstract value (minus the paper and ink used to print it); it only matters to us because of the possibility of what it might or might not do for us in the future. The ice cream, meanwhile has physical value in the form of calories and intrinsic value in the form of the way it makes the consumer “feel”, or rather the direct response we have to it.
Finally, if one is to subscribe to the reasoning of the authors, then we must subscribe to the reasoning that any time spent “wasted” not producing is time poorly spent. I am not making any money writing this and you are not making any money reading this, but it provides our brains with an immediate type of reward, an intrinsic value similar to the one the ice cream provides, and not very similar to the type of abstract reward the cash provides.
The short answer is: Our brains prefer the ice cream because it is a present-moment reward that we can immediately experience. The cash represents a reward the exists somewhere in the future. A future that our evolution on earth has taught us may or may not come to pass.
I need a new one, who has got experience of one of these:
http://www.destructoid.com/good-old-games-giving-out-tex-murphy-1-2-for-free-158111.phtml
Really interesting blog you got here. It’d be just great to read more concerning that matter. Thank you for sharing such material.
Hi man
It is my first time here. I just wanted to say hi!