The Lure of a Free Lunch

How the idea of paying nothing affects our choices.

Mother always said there was no such thing as a free lunch. And she was right.

In the world of business, the idea of ‘free’ is enough to throw a wrench in our brain’s circuitry, making us buy stuff we would not give the time of day. Dan Ariely, a professor in behavioral economics, argues that the idea of ‘free’ is hardwired into our minds, such that we place an outsized premium on ‘free’ at the expense of rational decision-making.

But how does ‘free’ exactly mess up our powers of rational thought?

I concocted hypothetical situations to see how ‘free’ affected the choices of consumers. Starting with tap water as an initial idea, I eventually stumbled across my product: coffee.

I went to the local NYU library and looked for unwilling victims to participate in my experiment. In my version, I pitted a cup of coffee from La Colombe against a cup of coffee from Dunkin’ Donuts.

La Colombe, an upscale chain of coffee shops was marketed with an artful logo and sounded vaguely exotic. Dunkin’ Donuts was ubiquitous and described more as fuel and less as treat: its slogan reads, “America runs on Dunkin’.” The associations could not be any more different.

In a variation of Ariely’s experiment, I charged random passersby three dollars for the cup of La Colombe coffee and a dollar for a cup of Dunkin’ Donuts coffee. In the second scenario, the Dunkin’ Donuts Coffee was free and the price of the coffee from La Colombe was two dollars. This way both cups of coffee received the same discount.

To my surprise, in both setups students always sprang for Dunkin’s coffee

Unlike Ariely’s pairing, my pair involved clear substitutes. In other words, there wasn’t a stark difference in quality. The taste of black coffee from La Colombe and Dunkin’ Donuts were effectively the same to anyone but a connoisseur.

Sure, the taste of La Colombe’s coffee was more ‘robust’ and earthy, but the improvement was marginal, surely not enough to warrant a huge price difference. I realized that I had priced the coffees such that Dunkin’ Donuts would always look like a great deal, free or not.

So I changed the parameters of the game. For the first scenario, I lowered the price of La Colombe’s coffee down to a dollar and the Dunkin’s coffee to fifty cents. 44% of the participants preferred Dunkin’ Donuts and 56% of the participants preferred La Colombe in the first scenario.

But when I told them that I would give the Dunkin’s coffee for nothing, even as La Colombe received the same discount of fifty cents, students jumped for Dunkin’s coffee. 19% preferred La Colombe and 81% chose Dunkin’s. Here, I began to see the results I had first anticipated.

I hoped that having a homogeneous product might mute the power of ‘free’, but that was not the case at all. If I had to repeat the experiment again, I would have employed a larger sample size and used a control group and a experiment group, to see if the results would have changed.

Did this prove anything? Sure, the idea of paying nothing for something is powerful. Ariely suggests a reason for this phenomenon. If we equate payment with pain, people would view ‘free’ as an absence of pain, turning a decision that involved relative choices into an absolute one. It then becomes a matter of pain or no pain; a rather clear-cut decision.

But the implications of Ariely’s idea are wide-ranging for business and marketing. If your products are suffering lagging sales, or business is slow, ‘free’ could be the all-important ingredient to tip the odds in your favor.