Free Predictably Irrational by Dr. Dan Ariely Page B

price of a Lindt truffle at 15 cents and a Kiss at one cent, we were not surprised to find that our customers acted with a good deal of rationality: they compared the price and quality of the Kiss with the price and quality of the truffle, and then made their choice. About 73 percent of them chose the truffle and 27 percent chose a Kiss.
    Now we decided to see how FREE ! might change the situation. So we offered the Lindt truffle for 14 cents and the Kisses free. Would there be a difference? Should there be? After all, we had merely lowered the price of both kinds of chocolate by one cent.
    But what a difference FREE ! made. The humble Hershey’s Kiss became a big favorite. Some 69 percent of our customers (up from 27 percent before) chose the FREE ! Kiss, giving up the opportunity to get the Lindt truffle for a very good price. Meanwhile, the Lindt truffle took a tumble; customers choosing it decreased from 73 to 31 percent.
    What was going on here? First of all, let me say that there are many times when getting FREE ! items can make perfect sense. If you find a bin of free athletic socks at a department store, for instance, there’s no downside to grabbing all the socks you can. The critical issue arises when FREE ! becomes a struggle between a free item and another item—a struggle in which the presence of FREE ! leads us to make a bad decision. For instance, imagine going to a sports store to buy a pair of white socks, the kind with a nicely padded heel and a gold toe. Fifteen minutes later you’re leaving the store, not with the socks you came in for, but with a cheaper pair that you don’t like at all (without a padded heel and gold toe) but that came in a package with a FREE ! second pair. This is a case in which you gave up a better deal and settled for something that was not what you wanted, just because you were lured by the FREE !
    To replicate this experience in our chocolate experiment, we told our customers that they could choose only a single sweet—the Kiss or the truffle. It was an either-or decision, like choosing one kind of athletic sock over another. That’s what made the customers’ reaction to the FREE ! Kiss so dramatic: Both chocolates were discounted by the same amount of money. The relative price difference between the two was unchanged—and so was the expected pleasure from both.
    According to standard economic theory (simple cost-benefit analysis), then, the price reduction should not lead to any change in the behavior of our customers. Before, about 27 percent chose the Kiss and 73 percent chose the truffle. And since nothing had changed in relative terms, the response to the price reduction should have been exactly the same. A passing economist, twirling his cane and espousing conventional economic theory, in fact, would have said that since everything in the situation was the same, our customers should have chosen the truffles by the same margin of preference. *
    And yet here we were, with people pressing up to the table to grab our Hershey’s Kisses, not because they had made a reasoned cost-benefit analysis before elbowing their way in, but simply because the Kisses were FREE ! How strange (but predictable) we humans are!
    T HIS CONCLUSION, INCIDENTALLY, remained the same in other experiments as well. In one case we priced the Hershey’s Kiss at two cents, one cent, and zero cents, while pricing the truffle correspondingly at 27 cents, 26 cents, and 25 cents. We did this to see if discounting the Kiss from two cents to one cent and the truffle from 27 cents to 26 cents would make a difference in the proportion of buyers for each. It didn’t. But, once again, when we lowered the price of the Kiss to free, the reaction was dramatic. The shoppers overwhelmingly demanded the Kisses.
    We decided that perhaps the experiment had been tainted, since shoppers may not feel like searching for change in a purse or backpack, or they may not have any money on