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September 11, 2012

Why free stuff has always been so irrationally exciting


Each year, publishers of the Youth's Companion dedicated an entire issue to a catalog of prize offerings for readers: train sets, dolls and dollhouses, sleds, cast- iron toys, magic sets, miniature steam engines, kaleidoscopes, miniature printing presses and more.

Publishers took their cues from the incentive programs that marketers had been using since the mid-19th century. Such programs were used to attract the patronage of adults rather than children. Soap maker B.T. Babbitt, a friend of P.T. Barnum, is credited with using the first incentive strategy in the U.S. in 1851, offering free lithographic prints with bulk purchases of soap.

Other entrepreneurs soon followed, promising free things from the practical to the fantastical along with the purchase of books, food items and other consumer goods. The American Tobacco Co. even induced amputees to purchase their products by offering them artificial limbs. In one plaintive letter to a trade journal in 1911, a man missing one leg at the knee implored his fellow members of the Brotherhood of Railroad Trainmen to contribute their tobacco coupons: He needed to amass 40,000 of them in two years.

From a business perspective, incentives have been a smart strategy from the start. They have a way of persuading us to buy goods we otherwise might not have, to buy them in greater quantities than we had intended, or to waste valuable time standing in line for a free item we have no use for.

As Dan Ariely explains in "Predictably Irrational: The Hidden Forces That Shape Our Decisions," paying nothing for something is "a source of irrational excitement." It overrides the rational part of our brain that would calculate how much something offered for free might actually cost us. "Most transactions have an upside and a downside, but when something is FREE! we forget the downside," Ariely writes. "FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is."

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