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How 'Free' Has Even More Value Than People Think It Should
from the and-so-it-goes dept
Earlier this year, we pointed to some of the psychological reasoning for those in the RIAA/MPAA's of the world (and their supporters) for arguing against giving stuff away for free, even when there was evidence that they could make more money doing so. In that case, psychological experiments showed that people don't act rationally when they think something is "unfair." That is, they'll take a worse absolute result, just to make sure that they're relatively better off.
Now there's a new book that just came out that highlights a related irrationality. This one is by behavioral economist Dan Ariely. Someone had told me a year ago to look out for Ariely's book, which I had forgotten about, but now that it's out, it appears to include discussions on some very interesting experiments. If you listen to the audio interview at that link, Ariely discusses an experiment he ran with children at Halloween. He first gave them all three Hershey kisses. Then he held up two Snickers bars -- one tiny one and one large one. He offered to trade them the small one for one kiss and the large one for two kisses. Most kids quickly made the trade for the larger Snickers bar -- which is a perfectly rational move.
He then changed the terms of the experiment. He offered to give kids the small Snickers bar for "free" or the large one for one Hershey kiss. Most kids now took the free small Snickers bar -- even though they are worse off in that case. Having two Hersheys kisses and the big Snickers bar providers more chocolate than three kisses and the small bar -- but the impact of "free" got them even more interested. Ariely ran more similar experiments (economist Tyler Cowen wrote about one recently) and found that again and again people overpay for free.
This is certainly an interesting finding, given all that we talk about the use of free in economics. If anything, this (bizarrely, I'll admit) makes the case even stronger for using free as a part of any business model. It suggests that people value something that's offered for free more than they should. That has enormous implications for the promotional value of "free." If you're using it that way, it actually increases the value relative to other things, despite the myth some people still have that if something is "free" it means it has no value. Anyway, Ariely's book, Predictably Irrational is now available. Ariely has also put up a blog about the book, though there's not much info there just yet.
