The irrationality of FREE

I caught this piece on NPR where behavioral economist Dan Ariely was describing one of his experiments with trick-or-treaters he conducted last halloween.

In the experiment he first gave a set of kids 3 hershey kisses and asked them to not put them away. He then presented them with the option of exchanging one hershey kiss for a small snickers bar, or 2 hershey kisses for a large snickers bar. Virtually all the kids traded 2 hershey kisses for the large snickers bar which was a fantastic deal - returning an 8 times ROI on chocolate for chocolate.

Dan then ran a slightly modified experiment on the next set of kids. As before he gave each 3 hershey kisses but this time he discounted both snickers bars by the same amount. The kids could get the small snickers bar for FREE or give up 1 hershey kiss for the large snickers bar. Going for the large snickers bar was still a tremendous deal but this time virtually all the kids went for the small snickers bar instead. They basically passed up a still fantastic deal for the allure of free.

Dan found the same “FREE hot button” in experiments run with adults. I experienced the same first hand last week at SXSW. People were willing to stand an hour in line to get FREE beer and company schwag which was usually gone by the time you finally made it in.

The allure of FREE is not new. Businesses have been using this tactic for decades but I particularly was surprised by the irrationality of FREE - where we tend to make seemingly obvious irrational decisions in the face of getting something for nothing.