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Follow Up: On Ice Cream, Pastries, Subs And The Concept Of Free…

March 23rd, 2010 · 7 Comments
Behavioral Econ · Decision Making · Econ 101 · Follow Ups

PUBLIC SERVICE ANNOUNCEMENT: According to Consumerist, today is both free cone day at Ben & Jerry’s and free pastry day at Starbucks. There, now you have two ways to get fat without spending any cash. But are the free items really free?

In a timely coincidence, the folks over at Environmental Economics noted the results of a local $1 sub day. So be forewarned that it’s things like these that you have to look forward to if you want your “free” snacks:

I wrote last year about how am I perplexed by what people will do for free (or cheap) stuff. The original post can be found here, and it goes as follows:

In pondering an earlier potential post I ended up doing a bit of research on Ben and Jerry’s. I had learned that April 21st was free cone day, and I was going to impart this oh-so-important knowledge on my lovely readers…but then I got disinterested in the post and it never got published. (It happens a lot, in case you are curious. I currently have about 30 or so drafts happening. Call it Economic Attention Deficit Disorder.) I apologize profusely for denying you your free cones, since as an economist I really like to err in favor of thinking that more information is better, but part of me feels like I may have done you a favor. Behold:

That is a damn long line for a free $4 item. (It was actually longer than it looks in the photos.) Let me remind you of Economic Principle #2, courtesy of Greg Mankiw: “The Cost of Something is What You Give Up to Get It.” In economic terminology, this concept is called opportunity cost. I bring up these ideas to make the point that the ice cream cone is not actually free unless your time has no value (and you like waiting in line as much as you like other activities). Let’s think about a few (contrived) scenarios:

  • Suppose you have a job that pays you $10 per hour. To go to Ben and Jerry’s and wait in the line for your “free” ice cream cone takes one hour. Therefore, you gave up the $10 you could have made by working, and the opportunity cost of the ice cream cone is $10.
  • Suppose you don’t have a job and spend your days sitting on the couch and watching TV. In this case, you aren’t giving up money to wait in line for your ice cream, but you are giving up an hour of pleasurable couch sitting and TV watching. I would have to imagine that sitting on the couch and watching The Daily Show, or 30 Rock, or Psych…or whatever floats your boat is more pleasant than waiting in line, so you are still incurring some sort of cost to get your ice cream.

This is not to say that the ice cream is not worth it- rather, I am just trying to make sure that you know how to think about the choice in the most sensible way possible. But wait- psychologically, there is even something else to think about in the decision-making process. I will call this Economic Principle #372: People Like To Feel Like They Got A Good Deal. Richard Thaler would call it transaction utility. In other words, it could very well be the case that the usefulness of the ice cream itself is not enough to make it worth it to wait in the line, but the happiness you get from knowing you got something for “free” could push you over the edge. Food for thought, literally.

In theory, you could extend the concept of transaction utility to account for the fact that some people really like getting things in the mail, since it separates payment from consumption and makes you feel like it’s your birthday whenever something shows up. I am one of those people, and thus I can relate to the following xkcd cartoon:

Tags: Behavioral Econ · Decision Making · Econ 101 · Follow Ups

7 responses so far ↓

  • 1 Mike // Mar 23, 2010 at 8:26 am

    It’s it fair to say that by making someone aware of the opportunity cost they were incurring by standing in line for their ice cream, you have at least somewhat decreased the transaction utility they were going to experience??…I hope you can live with that on your conscience!

  • 2 LL Cool A // Mar 23, 2010 at 10:24 am

    Hey Jodi,
    The Starbucks deal comes with a hitch; you have to buy a drink to get your “free” pastry.
    -LL Cool A

  • 3 John Carey // Mar 23, 2010 at 10:49 am

    Every time Denny’s offers the free grand slam the lines snake around the building, I just shake my head.

  • 4 Dan L // Mar 23, 2010 at 11:01 am

    Yes, the Starbucks pastry is not even remotely free, just free with purchase. I picked one up anyway, since I go to Starbucks regularly anyway (even though the pastries are not good). The line wasn’t longer than usual.

    Will be enjoying my free cone this afternoon. Please enjoy your opportunity cost of waiting in line while I enjoy my ice cream and its attendant transaction utility.

    Btw, you used “disinterested” incorrectly.

  • 5 Kevin Gilkenson // Mar 23, 2010 at 11:11 am

    I wouldn’t wait in a ridiculously long line for free ice cream, but I would for a free package.

  • 6 tamara // Mar 23, 2010 at 11:46 pm

    hey, Jodie this has nothing to do with your post but have you read Identity Economics by nobel laureat George Akerlof? and if you have, what are your thoughts about it? also I been meaning to ask you… what is a nice introductory book on behavioral economics?
    that’s it, is time to get back in the line xD

  • 7 Friday Links | Vicki Boykis // Mar 25, 2010 at 9:56 pm

    […] Why Ben and Jerry’s Free cone day isn’t worth it from Economists do it with Models […]

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