may-2010

MONEY MATTERS
“People make fi nancial decisions based
not on rationality and unbridled self-interest,
but on whim, habit and emotion”
30 Holland Herald FREE
More recently however, the fi eld of behavioural economics has developed,
as popularised by Duke University (USA) professor Dan Ariely in his book
Predictably Irrational.
Proponents of this new and increasingly popular fi eld suggest that people
make fi nancial decisions based not on rationality and unbridled self-interest (as
traditional economists argue), but on whim, habit and emotion.
According to Ariely, the word ‘free’ – or has he often puts it, ‘FREE!’– has the
power to override our logical thought processes. Rather endearingly, he even
confesses that a free offer (in this case, for oil changes) led him to buying an
impractical $30,000 Audi sports car, instead of the people carrier he’d set out for:
“I chose the wrong car because of an oil change worth $150,” he says penitently,
but clearly awed by the power of the magic F-word.
“Free is a powerful force,” he concludes, and anyone who has ever been
swayed by a ‘buy one, get one free’ offer into returning home with two products
that they didn’t want in the fi rst place will have to agree.
Ariely Ar has tested the psychology of give-aways with a
raft
of practical experiments. One trial offered
chocolates c to students, who could chose between a
Lindt L Truffl e for 26 cents or a Hershey’s Kiss for one
cent. Sales were even, as 40% of the students bought
a truffl e and 40% opted for the Kiss, the rest
declining d to buy. But then came the interesting part:
both b were reduced by a cent, making the Lindt truffl e
25 ccents
and the Hershey’s Kiss free. “We observed that
suddenly, sudd 90% of participants opted for the free Kiss,”
states Ariely.
The Th same phenomenon was seen when Amazon
launch launched a ‘free shipping’ offer with the purchase of a
second book. b The offer resulted in a leap in sales everywhere
in the world exc except France. Amazon marketers investigated and
discovered that the offe offer in France had not actually been free, but for a
nominal charge. Minimal in
fi nancial terms, the charge nevertheless prevented