How the Power of Free and Scarcity Influence Decision Making
Published: May 10, 2011
In previous columns, I’ve discussed mental shortcuts and their effect on decision outcomes, as well as loss aversion—the fact that people are much more sensitive to losses than gains. When loss aversion influences people’s mental shortcuts, the effect can be powerful. In this column, I’ll focus on a manifestation of loss aversion to which probably every reader can personally relate: the power of free.
The Power of Free
Have you ever attended an event such as a professional conference where sponsors were giving away freebies like pens, key chains, and other assorted chotchkes? How many of those chotchkes did you return home with—only to wonder later what possessed you to pick them up in the first place? If you can relate to this experience, you’ve experienced the power of free. Why is it that people feel so intensely attracted to things that are free?
Free—an Emotional Hot Button
Dan Ariely, in his book Predictably Irrational, says free ”is an emotional hot button—a source of irrational excitement.” Ariely and his colleagues have conducted some interesting experiments to learn about the power of free. In one experiment, they offered people a choice between a Hershey’s kiss priced at 1 cent or a Lindt truffle priced at 15 cents. Which type of chocolate do you think sold better?
Not surprisingly, the Lindt chocolate sold better; 73% of purchasers bought the Lindt. But then, the researchers ran another round of the experiment during which they offered the same choices—except they reduced the price of each type of chocolate by just one cent. Now the Hershey’s kiss was free, and the Lindt truffle was 14 cents. Which do you think sold better?
Even though they reduced the price by only one cent, there was a dramatic shift in behavior. In this second round of the experiment, 69% of the people favored the free Hershey’s kiss over the Lindt truffle. What is going on here? Why does free have such a dramatic effect?
Remember, in my first column ”Decision Architecture: Helping Users Make Better Decisions,” I said that we are of two minds: Gut versus Head. Since, as Ariely says, free is an emotional hot button, we have a very strong emotional response to free at a gut level. Gut thinks fast and decides mostly by emotion. Head is slow and analytical. Gut decides first, then Head reviews the decision. Even though Head can overrule Gut’s decision, the emotional power of Gut’s initial decision still carries substantial power and influence.
Free—an Easy Mental Shortcut
There are two other important reasons why free is so compelling:
- There is no downside.
- It’s a very easy mental shortcut.
Recall from my previous columns that people are very sensitive to the amount of work decision making requires. They are also very sensitive to the potential for loss and the risk of making a wrong decision. When an option is free, there is no risk to making a wrong decision. There is nothing to lose—nothing to spend. Because free eliminates the need to think, it enables a very easy mental shortcut: if there’s an option that’s free, take it!
Implications for UX Design
You can use free strategically to get a stampede of response. You can also provide a free option to make decisions easy and safe for people by taking the risk out of the decision process. And because people often feel the need to justify their decisions—both to themselves and to others—free provides a convincing rationale for their choice. For example, in Figure 1, Zappos takes the risk out of buying shoes online by providing free shipping—for both ways.
Figure 1—Zappos’s free, round-trip shipping
The example in Figure 2 combines the power of free with loss aversion. A free trial makes it possible for me to own an application for 30 days. Then, once the trial period is up, I don’t want to experience the loss of giving it up.
Figure 2—McAfee’s free trial
Figure 3 shows how Amazon does a brilliant job of using free shipping to motivate the purchase of additional items. How often have you ordered something from Amazon and felt the need to purchase the required $25 minimum so you can qualify for free shipping? In France, there was a time when Amazon didn’t offer free shipping. Instead, they charged customers one franc—about 20 cents—for shipping. As soon as Amazon reduced the cost for shipping to zero, sales jumped dramatically.
Figure 3—Free shipping on Amazon.com
Because people often associate free with no cost, it’s important to clarify the value of a free item. Otherwise, people may not recognize its value or may assume its value is minimal. When you use the term free, people usually think $0.00, or its equivalent in another currency, which is not the message you want to convey. Instead of saying, ”Receive a free security program,” it’s much better to say, ”Receive a $250 security program at no cost to you.” As Figure 4 shows, people can see the value of free shipping on Amazon.
Figure 4—Amazon shows what free is worth
Because free is risk free, it can convey a feeling of safety. In Figure 5, McAfee’s 30-day money-back guarantee makes it safe for people to have a change of mind without penalty or risk, thereby circumventing any potential for loss. From a seller’s perspective, however, loss aversion still exerts a powerful influence, because the consumer probably won’t want to give up what has become theirs after 30 days of ownership.
Figure 5—McAfee’s money-back guarantee
The Power of Scarcity
Now that we have seen how free makes a decision to acquire a product easy—both because free is an emotional hot button and because free is powerful due to people’s loss aversion—let’s look at the effect of scarcity on decision making.
Loss aversion is also at work when people encounter items that are scarce. Scarcity creates a subconscious drive to take action now. When something is available in only limited supply, we automatically make an assumption that it is more valuable, which leads us to want it—even though we wouldn’t ordinarily want it if it weren’t in scarce supply!
The assumption that something is more valuable because it is scarce is a common mental shortcut. This shortcut makes logical sense in many situations. When something is in demand, it is often because the item is of good quality and, hence, desirable. If you have a choice between eating at two local restaurants and one has a waiting line, but the other doesn’t, you might assume that the one with the waiting line has better food. Mental shortcuts are often beneficial because they enable us to more efficiently navigate the complexity of life.
But the power of scarcity can also mislead us. To demonstrate the power of scarcity, researchers conducted a study in which they asked people to rate chocolate chip cookies according to a variety of different attributes. One group of participants took a cookie from a jar in which there were ten cookies. Another group of participants took a cookie from a jar containing only two cookies. Even though the cookies were exactly the same, people considered those they took from the jar with only two cookies to be more desirable. 
Revisiting Gut Versus Head
Free and scarcity differ from other types of mental shortcuts in that they have a subconscious emotional component that makes them particularly powerful. Gut exerts such a strong influence that it usually takes considerable effort for Head to override Gut’s decision. Gut is highly attuned to contrast—for example, the difference between light and dark, perfect and imperfect, or good and bad. Because Gut’s concerns include the basics of survival, the perception that we may lose something is particularly negative.
Scarcity complicates the Gut/Head decision process because, often, there is only a brief window of opportunity in which we can select something that is in scarce supply. When we can see the supply diminishing before our eyes, we feel particularly compelled to take action. One reason this is so compelling is that the experience makes scarcity both concrete and salient. TV shopping networks have known this for years and are masters at leveraging the power of scarcity to its fullest extent.
Scarcity and Framing
In a previous column, “How Anchoring, Ordering, Framing, and Loss Aversion Affection Decision Making,” I discussed framing and how you can use it to direct people’s attention and, consequently, influence their judgments and decisions. Framing can leverage the power of scarcity by proposing mental images that compel us to take action. Consider, for example, these two statements:
- Operators are standing by to take your call.
- Please stay on the line. We’ll get to you as quickly as we can.
Each of these options brings to mind a completely different picture. In the first scenario, you might envision operators who are drumming their fingers on their desktop, waiting for the phone to ring. In the second scenario, however, it appears operators are scrambling to get to each caller in a timely manner.
Implications for UX Design
The Web site shown in Figure 6 displays items that are sold out and, consequently, not available for sale. From a traditional usability perspective, you might consider this a waste of valuable screen real estate. If a person can’t buy it, what’s the sense of displaying it?
Figure 6—Displaying sold out items on Overstock.com
But is it really? Which site do you think would sell more—a site that includes items that have sold out or a site that shows only available items? This example shows how decision architecture differs from traditional usability.
You could also show scarcity as time left to buy—for example, in Figure 7, 6 days and 6 hours. However, the power of scarcity would become even greater if the offer showed a limited number of deals available rather than the amount of time remaining in which to make a deal. If there were only a limited number of deals available, a shopper wouldn’t know when or how quickly others might take advantage of them, ultimately causing the deal to become unavailable at some unknown time. The additional ambiguity makes the deal even more compelling.
Figure 7—On Doubletakedeals.com, the time remaining in which to buy drives scarcity
The Web site in Figure 8 shows visitors, in real time, how much time is remaining in which they can open an IRA for 2010. The seconds tick backward, giving a compelling sense that time is running out. Drawing visitors’ attention to this countdown through the constant changes to the seconds field augments the sense of urgency.
Figure 8—Communicating scarcity in real time
The gourmet meal shown in Figure 9 demonstrates the synergy between the combination of scarcity of food on a plate with the high price of a meal that may operate on a subconscious level, making a customer perceive a meal as tasting better and well worth the high price.
Figure 9—Scarcity in a gourmet meal
In this column, I’ve examined the power of free and scarcity, as well as the psychological processes that make them so influential. I’ve also suggested that, sometimes, decision architecture and usability can be at odds with one another when it comes to allocation of real estate on a Web page. Decision architecture recognizes the powerful psychological processes that drive human behavior and decision making and how leveraging them through a Web site’s design can enable a business to achieve its objectives for a site.
 Worchel, Stephen, Jerry Lee, and Akanbi Adewole. “Effects of Supply and Demand on Ratings of Object Value.” Journal of Personality and Social Psychology, Vol. 32, Issue 5, November 1975. Retrieved April 8, 2011.