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The Cost of Free

by Carl Richards

[Recently] Hulu, a streaming video site, announced it would offer “a selection of ad-supported full TV episodes on mobile devices—for free.” Take a guess what all the headlines focused on: It’s free!

Free is a powerful word. So powerful, in fact, that it can turn us from rational people into people who barely pause before grabbing two of something we don’t need to get a third something free.

Case in point, none of these headlines touch on the reality that streaming all this data will come at a price. Few of us have unlimited data on our mobile devices, and unless you can always connect to someone else’s Wi-Fi, there’s a cost to this free service.

Dan Ariely talks about this issue in his book Predictably Irrational (he spends a whole chapter on it, if you’re really curious). He writes (and I agree) that free isn’t automatically a bad thing, but “the critical issue arises when FREE! becomes a struggle between a free item and another item—a struggle in which the presence of FREE! leads us to make a bad decision.”


useless crap

Take a minute and think through some of the free offers that you were convinced made perfect sense in the moment, but in hindsight, well, not so much. Have you given up a better deal because you were blinded by free?

According to Mr. Ariely, it’s often difficult to remember the downside of something when we’re dealing with free.

Most transactions have an upside and a downside, but when something is FREE! we forget the downside. FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is. Why? I think it’s because humans are intrinsically afraid of loss. The real allure of FREE! is tied to this fear.

Even if the price of something is zero, there’s a cost. It may cost us time. It may cost us space. It may cost us money—eventually. Again, free isn’t automatically a bad thing. But knowing it can trigger an emotional reaction, and knowing there’s a cost to that reaction, means we need to proceed with caution the next time we think we’re getting something for free.


 

About the Author


Carl-Richards_avatar_1391531516-96x96

Carl Richards is the director of investor education for the BAM ALLIANCE. He advises on best practices, marketing efforts and social media.

Carl is the author of The Behavior Gap and a regular contributor to The New York Times. Known for his simple sketches that capture complex investor behavior, Carl’s work has been featured in The Wall Street Journal, Financial Planning and at lifehacker.com. His work originally appeared on BehaviorGap.com.

Carl holds a bachelor’s degree in finance from the University of Utah.


 

The opinions expressed by featured authors are their own and may not accurately reflect those of JDH Wealth Management. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2014, The BAM ALLIANCE