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Was That Birthday Card Really Free?

Jun 11, 2012 • Behavioral Economics, Demand, Supply, and Markets, Economic Humor, Thinking Economically, Uncategorized • 94 Views    No Comments

Have you ever been delighted that you got something for free? I was until I read “the cost of zero cost” in Dan Ariely’s book, Predictably Irrational.

My story begins at a Papyrus store in NYC. About to pay for several birthday cards, the salesperson told me I would get one free if I just added another card to my purchase. Unfortunately, I did. I spent another 5 minutes that I could have used elsewhere to choose 2 cards that I did not need.

To explain our emotional response to “free,” Ariely asks the reader to quickly decide between a $10 Amazon gift certificate or a $20 Amazon gift certificate for which you pay $7. Most people in his experiment at a Boston mall selected the “Free” option. But, as you probably realize, the second one is better.

We can’t leave this discussion about “free” without a look at “free shipping.” Do you remember when Amazon told customers they would get free shipping on all orders above a certain amount? Like me, you might have bought 2 books instead of one to get the deal. In France, at the same time, Amazon charged the equivalent of 20 cents-a miniscule amount- for shipping and received no extra orders. Then, when they eliminated the charge, French orders climbed.

Ariely does not mention, though what happens when everyone offers free shipping. Do we perceive it as free anymore? He does say though, that free is a great incentive when government wants us to buy electric cars. Just give free inspections or registration. Preventive health care? Just make it free.

But, is it really free?

Maybe my greeting card was cheaper but the extra time I spent, the 2 unused cards still sitting in my drawer, and the money I could have saved or spent elsewhere made that “free” card rather expensive. I guess our bottom line is, “There is no such thing as a free lunch.”

Here is an excellent discussion of Ariely’s book in the New Yorker.

 

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