Tuesday, March 4, 2008


Let me start this entry by saying that I'm a huge fan of Dan Ariely's book and his blog. I am going to continue to follow his research closely because I think a lot of what he does with behavioral economics (basically, the intersection of economics and psychology) can have serious implications on public policy.

However, one experiment I didn't *buy* from his book "Predictably Irrational" is that of the gift certificate giveaway. Here's how it works:

At a local mall (I'm guessing he did this at the Galleria in Cambridge) Ariely's MIT minions presented shoppers with two choices: a) a FREE! $10 gift certificate to Amazon, or b) a $20 gift certificate to Amazon, for which they'd have to pay $7.

Amazingly, he reports, many shoppers chose option (a), which he implies was an irrational decision. [His larger point is supposed to be about how the FREE! label leads consumers to make irrational decisions (i.e. buy THIS car and I'll give you FREE! oil changes for a year, or waste an hour standing in line for a FREE! otherwise inexpensive item)].

Ariely finds option (a) to have been irrational, because it puts the consumer "up" $10 whereas option (b) puts the consumer "up" $13.

I'm not sure I agree. If I had been one of those mall shoppers, I know I would have chosen the first option because of the problem of slippage between cup and lip. With the $20 certificate, I'm dropping $7 on something I didn't necessarily want in the first place. I don't know if it's part of some scam, but more likely, knowing myself, I'm afraid I'll either lose it, or not use it before it expires (if it does).

I know I'm not alone in saying this -- my personal track record with mail-in rebates, gift certificates, cards, direct-mail coupons, etc. is not perfect. On top of that, I'm not a frequent Amazon shopper.

If I were both a frequent Amazon shopper and I were more meticulous with personal paperwork, I might view option (b) as a clearly superior alternative. But because I'm neither of the above, I don't view an Amazon gift certificate as the equivalent of cash.

If I were a frequent Galleria patron (say I ate there for lunch every day with a friend and we collectively spent $20) and were approached just before eating with the alternatives of either a FREE! $10 food court gift certificate or a $20 food court gift certificate for $7 (or $3.50 apiece), I believe that in that case we'd choose option (b), because only then would both options be as good as cash.

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