The cliche says “there’s no such thing as a free lunch.” It’s the idea that free, or discounted things, are never truly free - there’s always a catch. But do you know where it comes from, and how you can make it work for you?
The origin story
In the early 1890s, author Rudyard Kipling noticed something in San Francisco. Bars were offering free lunches to anyone who wanted one. Everyone loves a free meal, so the bars would be absolutely packed with people.
Of course, the lunch wasn’t actually “free”. It was usually a very salty meal, which would make patrons thirsty. This was long before bars had to give customers free water, so their only option would be to buy a beer to quench their thirst.
For lots of customers, it wasn’t long before they’d spent more on beers than they would have spent just buying some lunch. Financially, they were worse off.
Some researchers examined this a few years ago. They ran a stand where people could buy chocolates. There were two options: Lindt chocolates for 15 cents, or a Hershey’s Kiss for 1 cent. Now, by and large, Lindt chocolate is more delicious than Hershey’s Kisses, so you’d expect more of the Lindts to sell than the Kisses. This is exactly what happened. Nearly ¾ of the people who came to the stand chose to shell out 15 cents for a Lindt.
Then the researchers changed things up. They made the Lindt chocolates 14 cents, and the Hershey’s Kisses free. The stats pretty much reversed! 70% of people took the free Hershey’s Kisses, and 30% purchased the Lindts, even though the price difference between the two was exactly the same as it was before.
In other words, people were willing to eat a lower-quality bit of chocolate (sorry, Kiss fans), just because it was free.
Why does this happen?
Basically, people aren’t cold, rational automatons. We’re too busy living our lives to make full-blown cost-benefit calculations for every single decision. So for most of our decisions, we take shortcuts, using intuition to choose what feels right, rather than spending ages going through the specific numbers.
If you’re wandering by a chocolate stand, you’re probably not going to bust out a calculator and figure out whether the Lindt is worth 14 cents. It’s much faster and easier to compare the free chocolate to the chocolate that costs money, and make a quick decision to take a free one and carry on walking.
Free lunches in the wild
If you keep an eye out, you’ll see free lunches everywhere you look. And this isn’t necessarily a bad thing! A free extra perk on top of something you were going to buy anyway just makes that thing an even better deal.
If you were one of those free lunch customers in the 1890s and you wanted a couple beers anyway, then the free lunch would be a welcome extra perk. And you’d also get a great deal if you had the self-control to just eat without ordering a beer (although, in those more violent times, you may have gotten beaten up for doing this, which is the worst deal of all). The people who got a bad deal were the people who only wanted something to eat, but ended up spending more on beers than they would have spent on food.
As a modern example, a lot of higher-end hairdressers will offer you a glass of wine or a cup of coffee, for free. But a men’s haircut from one of these outfits will cost you $50, while a budget haircut will cost you $25. If you’re not fussy about your hair, you’re better off getting the $25 haircut and spending another few bucks on a coffee on your way back from the salon.
On the other hand, if you were going to get a $50 haircut anyway, then the coffee is a nice extra perk!
What to do when you spot a free lunch
So when you see something for free, or at a discount, ask yourself how much of your behaviour you need to change to get that offer. If you can get a free thing by doing something you would have done anyway, then congratulations! You’ve beaten the system for today.
But if you need to spend more, walk further, or wait longer than you otherwise would have, then you need to ask yourself how much that free thing is worth to you—and if it’s not enough, then take your hard-earned cash somewhere else.