The rut of predictably irrational behavior
Predictably Irrational, by Dan Ariely, is a fascinating collection of research about decision-making psychology.
Above is a great video produced by FORA.tv of Ariely, a professor of behavioral economics at Duke University, presenting examples of cognitive illusions during last year’s The Entertainment Gathering (EG).
Over at Coding Horror, Jeff Atwood (no relation, though my brother has the same name) explains “nine ways marketing weasels [use behavioral economics] to manipulate you” and “how we can avoid falling in the rut of predictably irrational behavior”:
#3: It’s “Free”!
Ariely, Shampanier, and Mazar conducted an experiment using Lindt truffles and Hershey’s Kisses. When a truffle was $0.15 and a kiss was $0.01, 73% of subjects chose the truffle and 27% the Kiss. But when a truffle was $0.14 and a kiss was free, 69% chose the kiss and 31% the truffle. According to standard economic theory, the price reduction shouldn’t have lead to any behavior change, but it did.
Ariely’s theory is that for normal transactions, we consider both upside and downside. But when something is free, we forget about the downside. “Free” makes us perceive what is being offered as immensely more valuable than it really is. Humans are loss-averse; when considering a normal purchase, loss-aversion comes into play. But when an item is free, there is no visible possibility of loss.
You will tend to overestimate the value of items you get for free. Resist this by viewing free stuff skeptically rather than welcoming it with open arms. If it was really that great, why would it be free?
Free stuff often comes with well hidden and subtle strings attached. How will using a free service or obtaining a free item influence your future choices? What paid alternatives are you avoiding by choosing the free route, and why?
How much effort will the free option cost you? Are there non-free options which would cost less in time or effort? How much is your time worth?
When you use a free service or product, you are implicitly endorsing and encouraging the provider, effectively beating a path to their door. Is this something you are comfortable with?
More about Ariely and his must-read book can be found at the official Predictably Irrational website.