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Ch. 3 - The Cost of Zero Cost 
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Post Ch. 3 - The Cost of Zero Cost
Ch. 3 - The Cost of Zero Cost



Fri May 28, 2010 6:10 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
This author is beginning to annoy me. I agree with him less and less as I read on and I do believe that most of us have a little more understanding of some of our choices in life than he gives us credit for. I also do not agree with what he sees as rational vs irrational choices.



Sat Jun 12, 2010 7:31 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
realiz wrote:
This author is beginning to annoy me. I agree with him less and less as I read on and I do believe that most of us have a little more understanding of some of our choices in life than he gives us credit for. I also do not agree with what he sees as rational vs irrational choices.

Disagreement sounds good to me. Maybe you can give us some more background on why you're not with him. I'm thinking that, mostly, he's talking about behavioral economics, which isn't our whole lives, I agree. Do you think he extends his conclusions too far, then? If you accept that much of our behavior in the economic sphere isn't rational (and I think I do), does that mean that, overall, we aren't rational? I'm not sure about that.



Sat Jun 12, 2010 10:08 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
DWill wrote:
realiz wrote:
This author is beginning to annoy me. I agree with him less and less as I read on and I do believe that most of us have a little more understanding of some of our choices in life than he gives us credit for. I also do not agree with what he sees as rational vs irrational choices.

Disagreement sounds good to me. Maybe you can give us some more background on why you're not with him. I'm thinking that, mostly, he's talking about behavioral economics, which isn't our whole lives, I agree. Do you think he extends his conclusions too far, then? If you accept that much of our behavior in the economic sphere isn't rational (and I think I do), does that mean that, overall, we aren't rational? I'm not sure about that.


When I read this book 6 or 8 months ago, I remember a feeling of loosing faith in the research that Ariely presents to make his points. I'll have to go have another look at the book to come up with specifics. It's funny, I wanted to agree with Ariely, because I believe that we are mostly pretty irrational or at least, that we rely too much on auto-pilot in making too many of our decisions to get through the day.

For anyone who is interested there is an interview of Dan Ariely done by one of the NPR programs. I will go find the link and post it later.



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Sat Jun 12, 2010 10:36 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
The objections realiz and Saffron raise seem to always come up when science tries to apply itself to human lives. Science is reductive and must be to achieve anything at all. But we feel instinctively that in reduction we've lost something essential when science investigates seemingly non-physical phenomena like our decisions. We want to say there is more to it than that and we resist pigeon-holing.

The question about this reaction I suppose is whether we're right or just acting defensively, defending a myth that gives us full, rational command over what we do. Ariely tells us the latter is exactly what we're doing, at least in the economic sphere, where it's fairly easy to run experiments on how we "think." He's trying to say that standard economic theory is full of holes, because it assumes that in the marketplace we act as agents possessing all needed information and make decisions based only on that information. So all decisions are quantifiable. The reality is far different, he says.

Where he might get into overextension is claiming that his data refutes the "Shakespearean" view of man as being "noble in reason...infinite in faculty...in apprehension how like a god." Aside from the fact that Hamlet is indulging in poetic hyperbole in the speech, who is able to say, looking at our achievement in science and the arts, that something like this view is not justified? I think that in that speech it is understood that Hamlet is talking about man at his best, not about the everyday behavior that is the subject of Ariely's research.

Note: I came back to add this part. Ariely establishes the presence of significant irrationality in our economic decisions. He doesn't always tell us how big the effect size is of his experiments, only that it is significant. He says that when he says there is a difference, that means a significant difference. I'm not good at statistics, but I believe that a difference of 20% over the control group would be considered quite significant. Another way to summarize such a result would be to say that, still, 80% of the subjects didn't seem to be swayed by irrational considerations. What I'm getting at is the glass-half-empty bias of scientific research reporting. That is always going to emphasize the difference found, but it will never put the matter in perspective by telling us that we're not looking at a day-or-night difference. And that's why studies on disease state their findings in terms of increased relative risk. A 200% increase in risk sounds very impressive, but would the absolute figures seem as impressive (from 1 in 100 people to 3 in 100 people)? No.

So, I don't think, after all, that Ariely proves we are irrational when it comes to economic decisions. He does show that we sometimes are, and it's worthwhile to hear this so that we can guard against irrational decisions. And in terms of public policy, it does seem wise to factor in the irrational component, because it is certainly large enough to cause trouble. What was the sub-prime housing fiasco but irrationality running away with people, on both sides of the desk. (Okay, on the lender side it could be plain old greed.)



Last edited by DWill on Sun Jun 13, 2010 11:58 am, edited 2 times in total.



Sun Jun 13, 2010 11:16 am
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Post Re: Ch. 3 - The Cost of Zero Cost
DWill wrote:
The objections realiz and Saffron raise seem to always come up when science tries to apply itself to human lives. Science is reductive and must be to achieve anything at all. But we feel instinctively that in reduction we've lost something essential when science investigates seemingly non-physical phenomena like our decisions. We want to say there is more to it than that and we resist pigeon-holing.


Don't include me in this. My objections had more to do with the research design. I will go get the book from the library so I can be more specific.



Sun Jun 13, 2010 11:59 am
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Post Re: Ch. 3 - The Cost of Zero Cost
BTW: Dan Ariely has a new book out. The Upside of Irrationality

http://www.amazon.com/Upside-Irrational ... 594&sr=8-1


Confession: I think I might be getting Dan Ariely's book mixed up with another book on Irrationalality. I'm heading to the library right now.



Sun Jun 13, 2010 12:04 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
Saffron wrote:
BTW: Dan Ariely has a new book out. The Upside of Irrationality

http://www.amazon.com/Upside-Irrational ... 594&sr=8-1


Confession: I think I might be getting Dan Ariely's book mixed up with another book on Irrationalality. I'm heading to the library right now.


Ooopie daisy, I was thinking about the research in the book by Todd Riniolo, "When Good Thinking Goes Bad." I did read Dan Ariely's book and now I have gotten it so mixed up with Riniolo's book I can't remember if I like Ariely's book or not.



Sun Jun 13, 2010 12:42 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
Saffron wrote:
Saffron wrote:
BTW: Dan Ariely has a new book out. The Upside of Irrationality

http://www.amazon.com/Upside-Irrational ... 594&sr=8-1


Confession: I think I might be getting Dan Ariely's book mixed up with another book on Irrationalality. I'm heading to the library right now.


Ooopie daisy, I was thinking about the research in the book by Todd Riniolo, "When Good Thinking Goes Bad." I did read Dan Ariely's book and now I have gotten it so mixed up with Riniolo's book I can't remember if I like Ariely's book or not.

Didn't you also read the book on happiness by Daniel Gilbert, whose title I forget. Could it be that one you're confusing this one with? (Was it Stumbling into Happiness?)

P.S. You're heading to the library right now? Must be nice. :o



Sun Jun 13, 2010 12:58 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
DWill wrote:
Saffron wrote:
Saffron wrote:
BTW: Dan Ariely has a new book out. The Upside of Irrationality

http://www.amazon.com/Upside-Irrational ... 594&sr=8-1


Confession: I think I might be getting Dan Ariely's book mixed up with another book on Irrationalality. I'm heading to the library right now.


Ooopie daisy, I was thinking about the research in the book by Todd Riniolo, "When Good Thinking Goes Bad." I did read Dan Ariely's book and now I have gotten it so mixed up with Riniolo's book I can't remember if I like Ariely's book or not.

Didn't you also read the book on happiness by Daniel Gilbert, whose title I forget. Could it be that one you're confusing this one with? (Was it Stumbling into Happiness?)

P.S. You're heading to the library right now? Must be nice. :o


I did read Daniel Gilbert (yes, Stumbling on Happiness), but it was the Todd Riniolo book that I was getting tangled up with Ariely. Now that I've had time to reflect, I did like Mr. Ariely's book and have already placed a hold on the new one. And if you must know and of course you do, I was driving someone else to the library and was obligated to go in - so, why not have a look around, right?
:wink:



Sun Jun 13, 2010 2:53 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
Quote:
I remember a feeling of loosing faith in the research that Ariely presents to make his points


Saffron,
I copied this and was going to agree with you...but then I read on and discovered you had been confused and have decided that you did.

DWill,
I was bothered both by Ariely's experiments themselves and by the conclusions he drew from them. Also, is continued use of FREE! I found very patronizing. I am at a disadvantage here never having studies economics in the classroom, but I have never agreed with what you are referring to as the standard theory, at least as far as I, from a layman's point of view, understand it.

Ariely uses one example of being offered an Amazon gift certificate for free worth $10 vs being offered an alternative $20 gift certificate for a cost of $7. Is conclusion is that most of us irrationally would take the free one, but that the $20 one would be the 'rationally better choice'. To me this example does not make sense. In fact, this is exactly the manipulative way that a company encourages us to spend more money...by spending more, you get more for FREE! The only way the $20 choice makes sense is it you already planned to spend that $20 regardless of the offer. This cannot be assumed. I find that many of Ariely's experiments assume too much and assume irrationality or rationality based on his thought processes.

His other conclusion at the end of the chapter is because we are so seduced by FREE! (isn't that annoying?) that we should make certain medical procedures FREE! because everyone will value them more. The value in FREE! is only there because of relativity, so as soon as it is always FREE! is ceases to have value.



Mon Jun 14, 2010 2:42 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
realiz wrote:
Ariely uses one example of being offered an Amazon gift certificate for free worth $10 vs being offered an alternative $20 gift certificate for a cost of $7. Is conclusion is that most of us irrationally would take the free one, but that the $20 one would be the 'rationally better choice'. To me this example does not make sense. In fact, this is exactly the manipulative way that a company encourages us to spend more money...by spending more, you get more for FREE! The only way the $20 choice makes sense is it you already planned to spend that $20 regardless of the offer. This cannot be assumed. I find that many of Ariely's experiments assume too much and assume irrationality or rationality based on his thought processes.

I see your point. In order for Ariely to have be right about FREE! (yes, it is annoying and in-your-face), he has to show not just that we love free, but that when it is paired with another choice it causes us to make an irrational decision. That doesn't seem to be the case with the first phase of the experiment, as you say. It's rational to take the freebie because it wasn't in our plans to spend money on any certificate. The second phase of the experiment, where the $10 certificate cost $1 and the $20 cost $8 had a much different result. Most people decided to buy the $20 certificate. I wonder if those who chose not to participate at all were counted. That would seem pretty important.

Quote:
His other conclusion at the end of the chapter is because we are so seduced by FREE! (isn't that annoying?) that we should make certain medical procedures FREE! because everyone will value them more. The value in FREE! is only there because of relativity, so as soon as it is always FREE! is ceases to have value.

Perhaps, though, the effect would last because all other medical procedures would continue to cost money, so we'd still see the free procedure as desirable by comparison. This might certainly be the case if we're uninsured. If we're insured, his point seems to be that such preventive tests are pretty cheap already, but to offer them for free would create a surge in response that would seem out of proportion to the amount we'd save. That would need to be tested.

I see the logic in his other examples of the emotional (i.e., irrational) pull that FREE! (sorry) has on us. I hope you keep reading despite some frustration with this book. It's good to hold the author accountable for questionable conclusions.



Mon Jun 14, 2010 4:43 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
I am still reading, and disagreeing, but I will move my comment to the appropriate chapter.



Thu Jun 17, 2010 1:43 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
I was at the library yesterday looking for a book we're discussing here, they didn't have the one I was looking for so I grabbed the Upside of Irrationality thinking it was "Predictably Irrational" which IS up on the board out there, but I was just... well... wrong. I'm too lazy to go a hunting again so I'm going to read this one, but was wondering if we have a thread for it anywhere, but this is all I could find when I did a search, so I'm assuming we do not. In any event I've become quite taken by the charm of the "The Shadow Effect" so I'll just keep going, doing my own thing, and hope that by the time the new reading selections are made that I will have an easier time getting my hands on the shared reading experience.



Thu Jul 29, 2010 12:43 pm
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Post Re: Ch. 3 - The Cost of Zero Cost
I read the book two years ago, and found the arguments persuasive. Since I've read other books making similar claims, I was more inclined to accept Ariely's conclusions.

If you're interested in the impact of making things free, the following book provides more details from a different perspective.

Free: How Today's Smartest Businesses Profit by Giving Something for Nothing by Chris Anderson
http://www.amazon.com/Free-Smartest-Bus ... ap_title_0
Quote:
In the digital marketplace, the most effective price is no price at all, argues Anderson (The Long Tail). He illustrates how savvy businesses are raking it in with indirect routes from product to revenue with such models as cross-subsidies (giving away a DVR to sell cable service) and freemiums (offering Flickr for free while selling the superior FlickrPro to serious users). New media models have allowed successes like Obama's campaign billboards on Xbox Live, Webkinz dolls and Radiohead's name-your-own-price experiment with its latest album. A generational and global shift is at play—those below 30 won't pay for information, knowing it will be available somewhere for free, and in China, piracy accounts for about 95% of music consumption—to the delight of artists and labels, who profit off free publicity through concerts and merchandising. Anderson provides a thorough overview of the history of pricing and commerce, the mental transaction costs that differentiate zero and any other price into two entirely different markets, the psychology of digital piracy and the open-source war between Microsoft and Linux. As in Anderson's previous book, the thought-provoking material is matched by a delivery that is nothing short of scintillating.



Thu Aug 05, 2010 7:50 am
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