A few months ago, a weird thing happened to me. In the middle of the movie screening I was attending, a photographer busted into the theater, walked to the front, and began snapping photos of the audience, flashbulbs and all. This, again, was in the middle of the movie, a time generally reserved for activities like watching the damn movie without distractions like lights blasting in your face.
But the weird thing wasn't that the photos were being taken—to be used for some kind of promotional material, no doubt—but the audience's collective reaction to such an event taking place: We just sat there. Not a single voice of discontent was heard, not a muffled-under-the-breath sigh, no shifts in the seats. Instead, we all just let it happen. In retrospect, the reason for our inaction was obvious: The movie screening was free.
Getting something for free makes us act a whole lot different than when we pay, even if it's just a few cents. What exactly is going on when the price of something is lowered to zero?
Our world is dominated by a constant flow of cost-benefit analyses. On a macro level, this is a government weighing the cost and subsequent benefit of declaring war. On a micro level, it's your $10 movie ticket or your $3 latte. While the stakes of the respective decisions are dramatically different, the route for getting to them is roughly the same: Figure out how much you're going to lose, figure how much you're going to gain, subtract the first from the second, and if you're left with a positive number, have at it.
Not so when free comes to the party. The introduction of free throws off how we normally process decisions. “It only implies benefits and no costs,” says Juan Nicolau, a professor of economics at the University of Alicante. “While another offer with a positive price, no matter how small it is, always conveys both benefits and costs.”
“When people are offered something for free, they have this extreme positive reaction that clouds their judgment.”
This phenomenon is called the Zero Price Effect. Much of our knowledge on how free tricks our brains comes from a series of experiments conducted in the mid-aughts by Kristina Shampanier, Dan Ariely, and Nina Mazar, while they were all based at MIT's marketing department. (Ariely is now a professor at Duke, Mazar is an associate professor of marketing at University of Toronto, and Shampanier works at the economic consulting firm Analysis Group in Boston.) In 2007, they wrote an article in the journal Marketing Science that analyzed the true value of free products. “When people are offered something for free, they have this extreme positive reaction that clouds their judgment,” Shampanier says. “They are ready to forgo options that are, rationally speaking, better for them.”
In one experiment, participants were given three choices: Buy a “low-value product” (a Hershey's Kiss) for one cent, buy a “high-value product” (a Lindt truffle) for 14 cents, or buy nothing. The researchers performed a few variations, changing the types of chocolates and the price points, but the general concept was the same. Other participants were randomly assigned to face a slightly different choice, in which the cost of each chocolate was lowered by a single cent. The Lindt truffle was now 13 cents, while the Hershey's Kiss was free.
“When both chocolates are not free, the majority prefers the truffle even though it's more expensive,” Shampanier says. “But when the Hershey is free, the majority of people prefer it.” Or, as the paper put it after crunching the numbers, “the reduction of a price to zero is more powerful than a five-times-larger price reduction that is within the range of positive prices.”
Why does free work this way? One possible explanation was simply the effort it takes to pay anything. Indeed, the experiment didn't account for the non-monetary cost of the time it takes to reach into your wallet or coin purse, count out the pennies, place them on the table, wait for the other person to double-check your count, and, finally, for that person to approve the the transaction. Going through those steps simply may not have been worth it when compared to just grabbing the free Hershey's and walking off.
But this explanation didn't jive with Shampanier. “We thought, people are too lazy to get one cent out of their wallet?” she says. They conducted another experiment, this time at a cafeteria checkout line where people were already prepared to reach into their wallets. The results were the same. They even performed a version of the study using merely photos of the chocolates and their respective prices, asking participants how positively or negatively the subjects felt about what they saw. In all cases, the free Hershey's Kiss was viewed as the most positive. “It's not about having to reach out for the money, it is this affective reaction that people have,” Shampanier says.
When free is introduced, our brain is being affected by “affect heuristics,” mental shortcuts we use all the time. Essentially, these are “gut feelings” we consult when making decisions of relatively low importance. A decision about which muffin to eat and which house to buy shouldn't take the same amount of time, so these decision-making shortcuts kick in to save us a headache on trivial judgments. But when free gets introduced into the picture, our heuristics kind of short circuit. “There is zero downside to this,” our heuristics say. “So, might as well chose it!”
Of course, this isn't the actual case, especially since marketers have entered the mix. Compare an ordinary hotel room versus a hotel room that comes with a free breakfast, for example. “Benefits and costs are always present, as opting for the alternative with a free component does imply paying for [the] other component of the product,” Nicolau says. “Nonetheless, a positive affection is generated toward the component and, in turn, toward the whole product itself.” In other words, just because we're getting something that is listed as free, we're more apt to feel better about that option, despite the fact that the cost of the free whatever is being reclaimed by another part of the bundle.
The introduction of free also changes how the “seller” looks at the transaction. Suddenly, the photographers don't even feel the need to ask whether or not they can interrupt the movie to snap photos. They just do it, and we just allow it. “Given that people who have and 'enjoy' a free product regard themselves as 'privileged,' they might be more willing to allow the entity that is giving the free offer to ask for something, something which is non-monetary, of course,” Nicolau says.
How are we supposed to guard our own decision-making processes from this wrench in the system? By throwing in our own additional wrench as a corrective measure. “Add one cent or one dollar—if it's a bigger item—to this free price and add one cent or dollar to the other alternative you were considering, and see how you would react to these new choices,” Shampanier says. “That would help you understand if you're overvaluing the free product.” Bringing it back to my opening example of the movie, it would mean changing the equation—$1 for a movie plus being interrupted versus $11 for a movie without the interruption—and deciding from there. The cost of having a photographer interrupt the movie-going experience, then, is compared with a $10 savings on the ticket.
Of course, for me, it's obviously worth $10 to lose 10 seconds of time getting my photo taken. I'm pretty cheap and, maybe more to the point, a writer. But at least it's a decision this time, as opposed to being simply put under the spell of free.
The Sociological Imagination is a regular Pacific Standard column exploring the bizarre side of the everyday encounters and behaviors that society rarely questions.