The Hidden Cost of “Free”

I’m a sucker for free stuff, as much as I hate to admit it. Being on a college campus, I tend to go back to my dorm with a lot of free stuff I don’t really need or even like. Over the year I’ve accumulated t-shirts, water bottles, posters, and various other items.

It’s not just at school either. For example, tomorrow is free smoothie day at a local smoothie store. I’ve been quite excited looking forward to this for a couple days, until I really stopped to think about it and weigh the costs and benefits of going. Even though the store isn’t that far (about a 15 minute bus ride, which, when you don’t have a car is not considered to be that bad), I’m probably losing out on more to get the free item. Not only is the bus fare $1 each direction, but I’m losing 30 minutes of my time, which is a precious resource I can never get back. The popular phrase “there’s no such thing as a free lunch” applies, and in the end, the free smoothie doesn’t really seem so free anymore.

I admit that is a simple example, probably quite obvious with some common sense. (What can I say in my defense? I love smoothies!) But think about it on a larger scale: people react to free items in quite strange ways. Dan Ariely, a professor at MIT and the author of Predictably Irrational, was curious about this phenomenon and designed an experiment to observe the average person’s behavior in such situations. For his experiment, he set up a table in an MIT cafeteria. The cafeteria normally offered high-priced Lindt chocolate truffles for 15 cents and ordinary Hershey kisses for a penny. 73% of the customers saw a good deal and went for the truffles. Next, he lowered the prices of both chocolates by one penny. The 15 cent Lindt truffles became 14 cents, and the Hersey kisses became free. This time, 69% of the customers went for the kisses, even though the difference in price between the truffles and kisses remained the same. What happened to all the people who liked the truffles? They instead flocked to the FREE! item.

So why is the allure of a free item so special? Ariely believes that “most transactions have an upside and a downside, but when something is free we forget the downside. Humans are afraid of loss, and when there’s no visible possibility of loss [such as with the free item], we will choose it.” Of course, some free items are great and will benefit us, but it’s always important to think about the cost hidden in a “free” item.

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3 Comments »

 
  • Joao Pedro Afonso says:

    Nice post. I often have discussed the irrationality of searching for the best price between supermarkets in my family. I find a lot of times my mother urging my father to buy in a certain place and not in other, for a difference of cents. There are certainly some cunning involved, since the expenses came from different mental boxes (fuel is my father department, food consumables are my mother’s), but in time, I came to learn that was a way of my father to keep active too (a pretext for driving), so he goes along. Saying that, maybe you should look for the hidden benefices too, beside the hidden costs. For instance, one often forgotten, is the value of a good story. Like fisherman stories, a good purchase is keep alive for months in the form of remembered stories, and what better deal exist than the free costless one. Sharing those stories is part of our social interaction (and maybe that’s why you end thinking too much about your smoothies… do you have someone now to whom to gloat about the free smoothie you are going to acquire? Beside us?).

    Because nothing is really for free (we have the saying, “there is no free lunches”), and everything costs something, the fact of having someone willing to give something for free turns it special. The rarity of its opportunity is itself a value. Have you ever attached yourself to some thing you found at a great price, because you know you’ll never find it that way again? The thing, a dress, a pair of shoes, a book, something, might be easily replaced by other similar purchased at a reasonable price, yet, we are hurt if it is wasted… and that’s because it is not only the item which disappears but its rare story too. Fitting the argument, you can enter the store any day to buy a smoothie, but only in one day of the creation, you’ll have that smoothie free… that’s a special smoothie then, with a story. And walking to a more consensual examples, what are objectively gifts, birthday’s, others, if not free items? But there, we even know of a term for the hidden benefice I was suggesting: “sentimental value”.

    This is a direct critic to what Ariely appears to believe. Everyone knows there are no “free” things so everyone is looking for the catch. His reference (in your text) to “**visible** possibility of loss” proves it: people look for the catch, for the downside… so we cannot say they forget it. It’s just, to some is more “visible” than to others.

    My second comment is about how we explain the cafeteria experiment. “There” was “surprise” there because the demand grew up much more for the “became-free” product than the other, despite the price reduction to be the same. Because that demand was considered anomalous and a very different reaction for the “same” reduction, we elected the change of status of the free product from priced one as the motive for it… and end discussed why free products are special.

    However, I don’t think that’s a good conclusion for the experiment. We stressed the equal reduction of absolute price, but that induces an error: they didn’t experimented an equal reduction in “price”. For the intelligent consumer, what’s matter is not what is the absolute price of the goods, but how much he can acquire with what he has. A reduction of price to zero means he can acquire an infinite number of goods more than before. Opposite to that, a reduction of 15 to 14 means he can buy only 7% more. Of course he will focus on the first product, he is much more cost effective to have. The surprise here is not the level of demand of the kisses but why they didn’t dominated completely the demand. If there are something apparent here is that, to be “free”, is detrimental, not beneficial. I can think of several considerations to explain what we “observed” here: the limited shift in demanding may mark the boundaries of the substitute value of the kisses… choices based on prices are only meaningful if both products are interchangeable, fulfilling some common hunger. The last standing may mean that 31% wouldn’t substitute Truffies for any kisses of this world. A second consideration… because Dan Ariely didn’t went bankrupt, I can only wonder the source of self-restrain of those choosing the free kisses. Was it self-imposed (“good education from the students”), or was there rules in the promotion? Maybe they had some influence. I think there are things missed in the description of the experience but, what I see here doesn’t need some special button in people to tune automatically to any opportunity of free good, just the normal economical common-sense.

    So, go girl, go to win the smoothies.

    PS.: By the way, what is a smoothie?

    • Allison Guerny says:

      A smoothie is a blended drink made with fresh fruit. There are so many different types, which you can read more about it in this Wikipedia article. I know the description probably doesn’t sound all that exciting, but they are delicious!

      For illustration effect: :)

      • Joao Pedro Afonso says:

        Wow!… Is that its aspect? It appears delicious!

        I don’t know if the bus you were talking is urban or not… meaning if we are talking an urban distance of maybe four kilometers maximum, or much more if the bus is inter-urban. In the first case, I would have probably swallow the bait and went there walking. Time is not wasted when we walk, we can think on things far from any potential interruptions. Imagine, walk that distance and be rewarded with a free smoothie? :-)

 

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