In 2007 three researchers, Kristina Shampanier, Nina Mazar and Dan Ariely, published a study in the journal Marketing Science about what a price of zero does to us. Their test was simple. They set up a booth in MIT's student center with two boxes of chocolates and a sign that said one chocolate per person. One box held Lindt truffles, the other Hershey's Kisses.
In the first version a truffle cost 15 cents and a kiss cost 1 cent. Among the people who took a chocolate, 73% chose the truffle and 27% the kiss. Then the researchers lowered both prices by exactly one cent. The truffle cost 14 cents and the kiss was free. Nothing else changed, and the difference between the two stayed at 14 cents. This time 69% of the people who took a chocolate chose the kiss and only 31% the truffle.
They also tried a bigger cut on the good chocolate. With the kiss free and the truffle down to 10 cents, the truffle still did no better, at 36%. A five cent discount on the truffle could not compete with zero on the kiss.
To check that people were not just avoiding the bother of finding a coin, the team ran the test again at an MIT cafeteria, where the chocolate was added to the bill of customers who were already paying for lunch. The free kiss still went from 21% to 71% of choices.
The researchers argue that free is not simply a very low price. A free option feels like it has no downside, so people pick it even when a paid option is the better deal. In the same paper they mention a story from Amazon. When it introduced free shipping in some European countries, the price in France was by mistake set to one French franc, about 10 cents, instead of zero. Orders rose sharply in the countries with free shipping, but not much changed in France.
