The High Cost of Free

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The most foolish things I’ve done in my life have been for neither love nor money, but simply for free ice cream. One spring, when I was about ten years old, in return for an ice cream cone, I swam out to the ice in Lake Champlain, only about 25 feet, but in water cold enough to kill. Of course, I was ten. But many people do things nearly that stupid for something “free” which could be purchased with about 10 minutes wages.

In Predictably Irrational: The Hidden Forces That Shape Our Decisions, Dan Ariely (from whom I cribbed the title this post) says that the allure of “free” is probably due to the fact that humans tend to make decisions based on avoiding loss and minimizing downside risk. Since “free” apparently has not potential for loss, it is overwhelmingly attractive, so much so that it blinds us to downsides that may be inherent in choosing the “free” option in a given situation.

A common downside of “free” is that it can be a collossal waste of time. When I lived in Berkeley, it astounded me every year when I would see students, full professors and dotcom professionals (this was pre-bust) line up around the block for a free ice cream cone. One year, I checked the line on my way to lunch and again on the way back, making note of how much progress the last people in line had made. I estimated that claiming the free cone took about two hours overall, possibly more if people walked any distance specifically for that purpose. Not counting the students, most people in that line were making over $30 per hour at their jobs but devoting two hours to “earn” a $3 cone. And even the poorest work-study student makes a lot more than $1.50 per hour. I haven’t tested my hypothesis, but I bet that if I offered those people $3 to walk downtown and stand on a sidewalk for two hours in return for $3, they would universally refuse. And yet, it is the exact same exchange, with the added bonus that they could buy coffee instead of ice cream with their $3 if that was their mood. So in fact, it’s actually a better deal. But who would take it? Probably nobody, though as I say, I haven’t tested it. Ariely has, though, in other circumstances and it seems likely that my instinct is correct. They would rightly think that they could do much better things with two hours and that $3 is a poor pay to give up that freedom. Yet there they are, every year, like lemmings.

Dan Ariely mentions another example of the high cost of free that has always galled me when I see it in use and when I see people fall for it. He mentions how marketers were, at one point, selling HD-DVD players by bundling in seven “free” HD format movies (not BluRay). The HD format was at the time already on the ropes and a bad buy at any price, but “free” brings in buyers. I’ve never understood this definition of free though and it used to get me sidelong looks from my boss when I delivered pizzas for Domino’s between college and grad school back in the mid-1980s. Customers would call and ask whether delivery was “free”. I just couldn’t bring myself to say yes, but answered by saying “It’s included in the price.” That invariably begged a follow-up: “Is it cheaper if I come pick it up?” Answer: “No, delivery is included in the price whether you take advantage of it or not.” But it’s not “free”, that is having no cost. At least I couldn’t see it as such, but my obstinance on that point confused customers and amused my boss. That sort of obstinancy on my part is the kind of thing that, if you ask my wife, makes me at turns difficult and exasperating, but occasionally interesting as well. On my good days.

One last story. At the height of the dotcom boom, I was at a job fair talking to the owner of a startup. She was telling me what a great work environment they had. “We celebrate your birthday with a cake and after six months you get a ‘free’ DVD player.” When asked about quality of life issues, she said “Well, we’re a startup. We work long hours and don’t take much vacation.” So after about 30 seconds I knew this woman was an idiot hoping to hire people who didn’t know how to multiply. Let’s assume they work 50 hours per week 50 weeks per year for a total of 2500 hours. So after 1250 hours, you get a DVD player worth, at the absolute most, $125. Probably half of that. So over 6 months, your bonus is worth about $0.10/hr. If you stay for a whole year, though, it means it’s only worth $0.05/hr. Apparently, some people are impressed with this. It made me think they were idiots, but I did take their “free” coffee mug.

My long-suffering wife laughs at me when I pull my Jethro Bodine routine and start cipherin’, but I always reply that I can’t figure out if something is a good deal until I run the numbers. But running the numbers, of course, only lets me compare one thing to another and, as I mentioned earlier, the contrast principle can be used against you too.

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