The Price of ‘Free of Charge’
Topic: People tendency to irrationally prefer ‘free of charge’ propositions
Researchers: Dan Ariely (Professor of Behavioral Economics, Duke University, US) and Nina Mazar (Assistant Professor of Marketing, University of Toronto, Canada)
Formal Reference: Dan Ariely, “Predictably Irrational”, Hebrew Addition, Matar Publishing, Page 60-61, 66
Main Conclusion: People are prone to prefer ‘free of charge’ propositions, even if they are inferior to the alternative choice
Description of Experiment
a. Students were given the choice and made preferences according to the following:
b. Then pricing was changed and the experiment repeated:
The 1 US cent discount for both propositions changed people’s choice upside down, due to the transformation of the 2nd alternative (Hershey Kiss) to a ‘free of charge’ proposition.
People are prone to prefer ‘free of charge’ propositions even in the presence on better alternative offers. Such propositions might lead people to irrational decision-making.