Spurning Free Kisses and the Iron Laws of Behavioral Psychology
posted by Dave Hoffman
Even Tastier When They're Free
In Free, The Future of a Radical Price, Chris Anderson leverages a few behavioral psychology experiments to assert that companies ought to embrace free distribution as a business model. In particular, he highlight’s Dan Ariely’s work with Hershey kisses. As Malcolm Gladwell explained Arielly’s work in his review of Free:
Ariely offered a group of subjects a choice between two kinds of chocolate—Hershey’s Kisses, for one cent, and Lindt truffles, for fifteen cents. Three-quarters of the subjects chose the truffles. Then he redid the experiment, reducing the price of both chocolates by one cent. The Kisses were now free. What happened? The order of preference was reversed. Sixty-nine per cent of the subjects chose the Kisses. The price difference between the two chocolates was exactly the same, but that magic word “free” has the power to create a consumer stampede.
On this narrow reed Anderson concludes that free goods create extraordinary psychic effects. Both Gladwell and Matt Yglesias, otherwise quite critical of Anderson, embrace the point. Ygelesias argues that companies will compete away any behavioral effects, and that costs will never actually get to zero. He observes that, “the whole subject could stand to benefit from a little less good writing and a bit more plodding distinction-drawing.”
Well, I think I am well qualified to be a worse writer than Malcolm Gladwell, so I’ll try plodding for a bit. To begin with, folks should read the paper. It offers a readable description of the experimental series. Or, if you’ve a copy of Ariely’ book, he apparently synopsizes the results. After you’ve read the paper, return here for three quick questions about the general applicability of Ariely’s work:
First, we don’t know whether those effects are robust. Even if companies aren’t well-situated to compete away the “free” bonus, is it a universal attribute of human cognition, or something contingent and culturally fleeting? My sense is that the modern economy makes it much harder for ordinary consumers to know the worth/value of goods. (I bet this is testable: have people gotten worse, as I’d guess, at the “Final Showcase” estimates at the Price is Right over time?)
Second, will the result will hold up against debiasing? Most of the studies conducted involved relatively quick decisions in an noisy environment (a school cafeteria). Would you get the same result if you told people about the “free effect” before exposing them to the choice? I tend to think not — doesn’t engaging in this kind of behavior make the subject into a bit of a sucker?
Third, what about heterogeneity? Ariely doesn’t tell us much about individuals who continued to prefer truffles. Are the different demographically from the switching individuals? There’s a very strong nomothetic theme in Ariely’s work (like most BLE work). But not all individuals fall prey to the pull of free goods. Maybe we ought to study those who don’t want kisses, before we reform our marketing (and our law) to exploit (or protect) those that do.
February 18, 2010 at 8:21 pm
Posted in: Behavioral Law and Economics, Consumer Protection Law
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Responses (1)
Christa L. - February 18, 2010 at 8:54 pm
People have gotten worse at guessing the Price is Right showcase over time. My husband is addicted to the show, and the other day the host said, “They say that people don’t get as close in the showcases anymore.”
As for truffles, I imagine a lot of people, myself included, would take the free kisses but just not eat them, and then would buy the truffles to eat.
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