Zero Price Effect
The Basic Idea
In 2013, in celebration of Dubai being announced as the site for the World Expo 2020, Baskin Robbins declared that everyone in the United Arab Emirates could get a free scoop of ice cream. The crowds, as you may expect, were huge. The queues spanned for blocks, with lines for indoor mall outlets spilling outdoors.1 In all the madness, one might begin to wonder why people were willing to withstand these mobs for hours just for a $3 scoop of ice cream. Why are we so drawn to free things? This irrational urge towards getting free stuff is called the zero price effect.
The zero price effect is the principle that items with a price of zero are not accounted for by a linear utility model. In a linear model, a decrease in the price of a good would correspond to a proportional increase in utility and demand for the good. With the zero price effect, the increase in demand when the price drops to zero is much higher than at other prices.
In other words: “free goods have extra pulling power.”2
Generally, we evaluate whether an item is worth acquiring by its financial cost, effort to acquire, and benefit to us. Something priced at zero, however, tempts us to discard our regular decision-making process. When an item is free, our perception becomes distorted: we magnify the item’s benefits and ignore possible downsides.
People are willing to work for free, and they are willing to work for a reasonable wage; but offer them just a small payment and they will walk away.
– Dan Ariely
About the Author
Oorja Majgaonkar
Oorja is a former content creator with a passion for behavioral science. She previously created content for The Decision Lab, and her insights continue to be valuable to our readers.
