The irrational effects of FREE!
Hey Post,
Haven't written in a while, gotta get back in the habit. I won't bore you with a list of things that have been up since last I wrote, but I will pass on what I've been thinking about:
I started reading Dan Ariely's Predictably Irrational today (yes, I know, a year or two late). One part of the chapter on the irrational decisions we make to capitalize on FREE! really intrigued me.
One of the experiments Ariely cites is one involving Lindt chocolates and Hershey Kisses. People who came up to the booth were only allowed to take one chocolate, and they had three pricing conditions. When they were priced at 15 cents for the Lindt and 1 for the Kiss, people purchased, way more often than not, Lindt chocolates. Controlling for the effects of a 1-cent difference, they saw the same results at 16 cents/2 cents. But when the Kiss was offered for free, and the Lindt at 14 cents, there was a radical reversal in their popularity. While people seemed to derive more absolute pleasure from purchasing the far-superior Lindt at such a dramatically reduced price than a far-inferior (though still tasty) Kiss at a fairly standard price, the inherent value they ascribe to the chocolates is affected by an unknown force -- the emotional value we get from FREE!
Upon reading this, I started to think about the value we place on FREE! Can it be measured? Do we know what sort of awesome deal/awesome product offsets a shitty free one? I haven't come across any research that studies that seriously, and Ariely doesn't mention any in the book. If you know of some, I'd love a link. If not, I'll keep on looking (albeit casually) and let you know if I find something.
But Ariely continues:
In economic terms, Ariely describes in the appendix the reason why this is irrational: the pure value we perceive in the chocolates remains unchanged, regardless of the price (he suggests 30 or so pleasure-points for the Lindt, 6 or so for the Kiss), and is offset by the displeasure we experience through the price (for example, -1 pleasure-points per cent, which makes -15 pleasure-points for the Lindt and -1 for the Kiss in the base state). In absolute terms, the same reduction in price will always yield the same differential in terms of pleasure -- in the base case, Lindts give 15 pleasure-points, and Kisses give 5. The difference between those is 10 pleasure-points. With a FREE! Kiss, rationally, we would expect the values to change to 16 pleasure-point for the Lindts, and 6 for the Kisses. But that's not the case.
This gave me another hypothesis: perhaps the value we derive from FREE! exists as an avoidance of displeasure. This hypothesis could also help justify why we find volunteering pleasurable: if paying isn't pleasurable, and getting paid isn't either (as Ariely notes in the next chapter, it changes the framework from social norms to market norms), the avoidance of the displeasure is worth a lot of pleasure in our minds.
To sum up, I have two hypotheses I want to pursue (and would love it if you joined me):
- How much pleasure do we need to offer to offset the effects of FREE!? Further, is it an absolute amount or relative amount (250 pleasure-points, or 250%?)
- Is the emotional response to FREE! caused by our avoidance of displeasure?
Yours always with food for thought,
--Aidan
