Free stuff makes us irrational

https://thehustle.co/why-free-stuff-makes-us-irrational

by Anon84 • 4 months ago

50 60 4 months ago

867762462f• 4 months ago

One interesting angle here is how “free” changes not just user behavior, but also how builders interpret demand.

In AI products especially, it's very easy to mistake “engagement” for “real demand” — because when things are free, people try everything. You get signals, but many of them are noisy or even misleading.

I’ve been thinking about this a lot in the context of marketing tools: instead of optimizing for more exposure or more content, maybe the harder problem is filtering out false positives — figuring out where genuine demand actually exists.

Otherwise, we might just be scaling irrational behavior on both sides: users consuming free stuff, and builders chasing the wrong signals.

pdonis5• 4 months ago

I think this is exactly what's been happening ever since the ad-supported business model for the Internet began to spread. None of the big tech companies know what their services are actually worth to their users. The only way to really find out would be to have users pay for them, but that's a nonstarter now.

AnthonyMouse3• 4 months ago

What something is worth and what it costs are two different things. The big correlation is that if something costs more to produce than it's worth to the customer, nobody is going to make it. But if it costs less to produce than it's worth, who gets the surplus? In a competitive market, it's mostly the consumer rather than the supplier, because customers pick the supplier with the best price.

What ad-supported services did is zero out the price of anything that costs less to provide than the amount of ad revenue it generates. But the amount of ad revenue companies get per-user is already pretty small and companies are demonstrably willing to provide the existing services for that amount of money, so we know the upper bound and it's not that high.

chairmansteve2• 4 months ago

"None of the big tech companies know what their services are actually worth to their users".

The users are the product. They sell their attention to the advertisers. And they know exactly how much that attention is worth, because they use auctions to set the price.

ozgrakkurt• 4 months ago

Not if you are planning on using the attention, like almost all b-to-c services are.

They just need to get people used to something and steal their data or brain wash them with ads, there is no point in creating something that makes extra value.

ranger_danger• 4 months ago

I was hoping this would talk about the hordes of ungrateful users demanding more and more free labor from the unpaid volunteers of open source projects, but I guess we still don't know how to deal with that properly.

ks2048• 4 months ago

Dividing by 0 is very different than dividing by 0.0001

mememememememo3• 4 months ago

There is no zero. Your attention is worth something. I often ignore free promo competitions etc. for that reason.

mememememememo3• 4 months ago

I just don't like Lindt it is a matter of preference. Better to compare apples with apples. E.g. free kg of choc. 2kg for $1.

bredren• 4 months ago

I also didn’t like the example. How may people know the difference between chocolate quality?

Some for sure, but I wouldn’t count on it for interpreting price elasticity.

I still believe in the premise because of the action on Facebook buy nothing groups.

globular-toast• 4 months ago

Did you miss the part where people would pay more for the "high quality" chocolate when the price wasn't zero?

donatj• 4 months ago

I feel like this fails to consider my own valuing of my time.

Free Chocolate? Sure.

13¢ chocolate? I've gotta try to make change? An awkward amount no less. 3 pennies? They are getting hard to come by. I didn't even want a chocolate. I don't have any cash on me. Do you take card?

For instance, when I'm buying something off Facebook marketplace, if the items not a multiple of $20 bills and $50 bills, the denominations I can get from the ATM, I'm far less likely to buy it because I have to stop somewhere else on my way to the seller and try and make change. It's a pain in the butt.

I have literally overpaid for things from marketplace by a dollar or two to avoid making change.

But if my only options are 1¢ chocolate versus 13¢ chocolate, those are on way closer footing because either way I have to dig my wallet out.

I'd still take the Hershey kiss though because it tastes better.

djmips• 4 months ago

precisely!

soperj• 4 months ago

the denominations I can get from the ATM

Is this for real? We can request 5s and 10s from the atm, along with 20s and 50s.

hawaiianbrah• 4 months ago

Many ATMs in the US just spit out 20s, though there are some where you can specify your bills.

Finbel2• 4 months ago

Sorry I'm from Sweden and our banks have a service called Swish where we can send money on the phone. Paying in cash is extremely uncommon now a days. Every time I've bought or sold something on FB Marketplace the last decade I've used Swish. I thought you had something similar called Venmo in the US?

Aurornis2• 4 months ago

Yes, we have phone-based payments in the US, too.

Some people will want cash for in person transactions but it's more rare. In the US you run into a lot of people who don't trust phones, technology, tech companies, the government, or any other number of reasons to demand physical payments.

saghm2• 4 months ago

Venmo isn't really something I'd consider a "bank service"; it was its own company for a bit, and I think now it's owned by PayPal.

The closest thing here is probably Zelle, but at least with my bank's app, the interface is a bit of a pain. This basically is just another form of what the parent commenter said; how much do I value my own time and convenience compared to what I'd be getting?

01HNNWZ0MV43FF• 4 months ago

The US sits in a strange incentive landscape.

Since the government and corporations aggressively spy on everyone, and since government programs are often incompetent or overfunded or underfunded or corrupted or evil, there is (justly) little faith in the government.

Cash works fine. It can't be censored easily, it can't be tracked easily. ATMs have it.

When I trust the phones, I'll use phone payments.

kube-system4• 4 months ago

The problem in the US is too many options. In the US, Venmo, PayPal, Zelle and CashApp are all pretty popular. And there are others.

They’re easy if the one you use is the same one the other person is using. If you’re a Venmo person and you want to transact with a CashApp person, well one of you have to download and set up a new payment app or pay cash.

pseudohadamard• 4 months ago

Before people read too much into this, just be aware that Ariely has been caught out a number of times falsifying data or even making up entire studies that he then writes about in publications. Not saying this was the case here, but you'd want to look for corroboration in sources not involving him. TFA mentions a few, but most of it is from Ariely.

measurablefunc• 4 months ago

Yes, it's well known that money & prices are what make people act rationally. We'd still be slinging mud & rocks if it wasn't for money & prices.

aschla• 4 months ago

I'll never understand the people who stand in line for an hour for "Free donut day" or something similar. You really value a $1.50 donut equal to an hour of your time?

charcircuit• 4 months ago

Try thinking of it as if the options are watching TikTok for an hour vs watching TikTok for an hour in a line, plus you get a free donut. Standing in the line doesn't cause the person to miss out anything.

II2II2• 4 months ago

If I had to make a guess, it is for the same reason that people will pay more for free shipping: they simply aren't doing the math. Of course, there could also be other reasons, things like people valuing their free time differently. Just because your employer is willing to pay $N/hour doesn't mean you are losing $N by waiting in line for an hour.

Alupis4• 4 months ago

Just because your employer is willing to pay $N/hour doesn't mean you are losing $N by waiting in line for an hour.

Most people do nothing with their time. You're not being paid to watch TV or play video games. Learning is perhaps the only thing that pays, and it's not cash nor immediate.

dec0dedab0de• 4 months ago

Standing in line for an event is fun, even if it's a silly promotional event. You get to laugh and chitchat with the other people in line, and it's something different to do that doesn't require much effort. But also, those lines usually balance out relative to the value of the item, if it takes too long people start realizing it's not worth it and leave.

altmanaltman2• 4 months ago

Don't think that's how most people see it. The worth of "an hour of your time" is basically 0 no matter who you are. If you're doing something specific (like working) then that hour of your time has value which is preset by your employer.

But that doesn't extend into all hours of your life. Your employer will not pay your hourly rate for your personal hours just to live.

You can of course then say "oh but I value my time," but value is subjective while the dollar amount isn't. If you truly believe that, then you also believe that people's personal time has different worth based on how much they're paid, which is a fundamentally wrong way to look at the world imo.

andersa• 4 months ago

Many people are not salaried and can roughly convert more working hours into proportionally more money, so the comparison does kinda make sense. Why uselessly stand in line for an hour when you could use that hour to make more deliveries, do research on one of your clients cases, or whatever?

greenspam2• 4 months ago

I wake up every morning in a bed that’s too small, drive my daughter to a school that’s too expensive, and then I go to work to a job for which I get paid too little. But on Pretzel Day… well, I like Pretzel Day

arcanemachiner• 4 months ago

- Stanley from The Office

Aurornis2• 4 months ago

I had some coworkers who would always find these things and go to them during the day. It was a little outing for their team while they stood in line and talked. No harm in doing something like that from time to time, but I did think it was funny that they wouldn't just put it on the calendar and spend a couple bucks on going to a coffee shop instead.

II2II2• 4 months ago

The trouble with those examples is they assume a motivation from a behaviour. Such is the root of so many of the world's troubles.

KnuthIsGod• 4 months ago

Classic economist fail.

Fail to consider the transaction cost of paying the 13 cents for the Lindt, compared to the free Hersheys.

Plus Lindt sucks.

People give it me all the time as gifts. I give then give it away to random people like couriers.

Godiva on the other hand...

greenspam2• 4 months ago

I thought the article would be about something like when you get $100 free chip, you are much more likely to gamble and lose it; or when someone win a lottery, they would quickly spent the money compared to if they had earned the money with hard work.

BTW, behavior economics people like DAN ARIELY in this article got bad reputation after being found fabricating data on the research about honesty https://www.npr.org/transcripts/1190568472

saghm2• 4 months ago

The study they cite seems to be leaving out something: are the participantsforced to make a choice, or could they choose to not take either? If I were presented with the two choices they give, I'd probably take the free one in the first choice but not take either in the second because I just wouldn't care enough to buy the single small piece of chocolate for either price. If I were forced to make a choice, I might pick the Lindt, but I'd argue that then their experiment isn't actually testing the same thing. A forced choice been two things isn't the same as two options that can both be rejected.

meruvalley• 4 months ago

there was a no-choice option, it’s in the study (see the graphs)

chasebank• 4 months ago

For anyone who thinks there is flawed logic in this I encourage you to study JC Penney's pricing strategy failure. People, by and large, are not rational.

psychoslave3• 4 months ago

There is no absolute rational being out there to guide us however.

Certainly everyone makes irrational decisions, from this or that perspective. Everybody judge by the light of the scope their mind can handle at the moment they have to. When situation is that one got education integrating many tools of rationalization and all the idle time to practice it in stable virtually riskless social position, they most likely will do that. When one lakes sophisticated conceptual tools, time or budget or network to apply them, then they most likely won't bet on the long time most beneficial outcome after considering everything that rationality can ingurgite.

littlestymaar• 4 months ago

Behavioral economics have repeatedly showed that humans are consistently irrational when it comes to buying and selling stuff.

Modeling humans as rational agents simplifies the economic reasoning and the equation a lot so it's not entirely worthless, but we must always keep in mind that this model is very far from the reality even if it's sometimes useful.

psychoslave3• 4 months ago

That points more to the will of rationalizing people behavior through simple models than how much rational people can be.

How rational is the endeavor of creating rational models? At some point, people act on a mix of empirical and acculturated faiths. What's valuable, worthless or taboo depends on each unique situation.

psychoslave3• 4 months ago

Also people tend to act in crazy way as soon as money is implied.

apt-apt-apt-apt• 4 months ago

The chocolate study sucks.

The Lindt packaging is ugly as sin, while the Kiss looks sleek and cool.

And unless you're constantly jingling around with a bunch of coins, using a common dollar means you're going to be jingling around with 87 cents of dirty coins, after pulling out your wallet.

metalman• 4 months ago

third rate opinions strait from the soap box, worth less than the time it took to klick and run

Free stuff makes us irrational

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