Bear with me as I take you on a pictorial journey through my day last Friday. (I swear there is a point to all of this.) I gave a talk to a marketing company in Minnesota, so much of my day consisted of schlepping halfway across the country and back on about 2 hours of sleep. My first observation was that Minnesota and Boston look very different, even from the air:
(I will leave it to the reader to determine which is which. Also, if I ever get banned from flying, you can be pretty confident that it’s because I didn’t heed the no electronics on takeoff and landing bit. But really, if my iPhone camera is enough to bring down a Boeing 747, then it is very statistically unlikely that it hasn’t happened yet, and I therefore reject the null hypothesis of “personal electronic devices cause airplane chaos.”)
Anyway, I had some time to kill after my talk and before my flight back to Boston, so my gracious host dropped me off at, where else, the Mall of America. I mean, how can I study behavioral economics and consumer behavior and not be entirely too curious about this shrine to consumerism? I mean look, even in photos it looks like it’s being blessed by some higher power:
The effect is just a coincidence, of course, since we all know that God prefers Wal-Mart. As it turns out, the actual stores in the mall aren’t particularly interesting, so I went in search of a late lunch instead. And by lunch I mean booze, obviously.
I generally take opportunities like this to do some reading, so I pulled up Dan Ariely’s Predictably Irrational. Now, much of what’s in these sorts of books isn’t new to me, since I’ve already seen most of the academic papers that these sorts of books draw from, but I still feel the need to read them in order to see what information is actually getting out to the non-academic world.
I just so happened to be reading the chapter about the power of a zero price, and I learned/was reminded of a few things:
- As a couple of you have pointed out, Dan does in fact use the specific example of Ben & Jerry’s free cone day to illustrate the appeal of free stuff. I had no idea that I was totally ripping off his example, so I am retroactively giving credit where credit is due. 🙂
- It really does appear that the notion of free has a pull on people that a very low but positive price does not. For example, Ariely shows that changing a tradeoff between a 15-cent item and a 1 cent item into a tradeoff between a 14-cent item and a free item can move consumption significantly toward the free item, even though the underlying tradeoff hasn’t changed much.
- Ariely and his colleagues were able to replicate his findings in various contexts, including one experiment that he performed on kids coming to his house on Halloween to trick-or-treat. While he learned that kids are also irrationally drawn to free stuff, I learned that it’s not necessarily a good idea to live next door to an economist. (For this reasons as well as others.)
An ungated version of the paper that the book chapter is based on can be found here. In his book, Ariely concludes the discussion on the power of a zero price with the following:
Zero is not just another discount. Zero is a different place. The difference between two cents and one cent is small. But the difference between one cent and zero is huge!
If you are in business, and understand that, you can do some marvelous things. Want to draw a crowd? Make something FREE! Want to sell more products? Make part of the purchase FREE!
That is probably why I was so amused to see, not more than 10 minutes later, the following sign as I was walking around the mall:
Sigh. If research falls in a forest and no one’s around to hear it, does it make a sound?
Dear Wet Seal: YOU’RE DOING IT WRONG. That is all. xoxo, econgirl