The Economics of Free: Musings on B-School Handouts

Truly inspired by my professor’s musings on general business theory this year, I thought I would lend a hand in defining some new theory that too may prove useful someday. In my seminal work (love the word seminal), I want to posit a new theory that will soon sweep business schools near and far. I call it “The Economics of Free.”

In my time at HBS, I’ve seen many possible new theories-I’ve just never before formalized them in writing. For example, there is what I call the “Restaurant Associate’s Tipping Point,” otherwise known as the “Spangler Law of Diminishing Returns.” This theory dictates that certain foods from the cafeteria lose all utility after approximately four bites. In fact, from the fourth bite on you are actually doing harm to your body. Take Rice Krispie Treats, those glistening little beige squares of joy.

These things are the poster children of this theory. After four bites, these treats cease to lose any taste and you are left with a coagulated half- square of sugar that with every bite renders you more and more nauseous – not to mention verging on a diabetic coma. But don’t stop here. Let’s face it, the same can be said of spicy tuna rolls, pizza, just about anything. Ok, I have horribly digressed, but you get the point.

Nevertheless, food, a love affair of mine since the word “husky” joined my lexicon not as a furry animal in the Iditarod, but rather my clothing style since age 10, is the centerpiece of the my new “Free” theory.

At HBS, you view the absurd or the irrational every day. For example, the pounds of fresh sod regularly imported each day to fill our fields, enough to supply each stadium for the World Cup next year. But no phenomenon is perhaps more irrational, more absurd, than people’s reaction to free food. Well free anything, but as mentioned, food is near and dear. And therefore, as I take a large poke of fun at myself, and the entire gang of closet freebeans (pronounce free-be-ins), here goes.

Nothing on this campus motivates people more than the presence of free food. Nothing. People will drop everything, skip classes, fight, put hot needles in their eyes (ok, maybe a stretch) for a free hot dog or hummus wrap. Even a rancid oatmeal cookie elicits a rush to the door. People simply can not resist the lure of something for free. I hear these conversations all the time:

“Bag lunch between second and third period, my cholesterol is off the charts but I’m in, no gym for me today,”

“Warren buffet is in town!” “Nah, unless it’s a free buffet, skip it; there’s free pizza in Aldrich 208 to listen to P&G describe its animal testing process.”

“Jimmy’s Dad is in town, steaks ON HIM,” “Awesome! I’m a vegan and meat may kill me, but game on!”

Just some examples. See no matter the circumstances, no matter how painful the presentation or the lack of desire, free food is a siren call that simply does not go unanswered. So why? Why does this happen? Well, maybe it’s because we’re all students, right? A penny saved is a penny earned no matter what grade the meat.

On the surface that makes sense. But upon further review, the numbers just don’t add up. We may yearn for the quaintness and shabby chic of college poverty, but for a good many, thanks to the largesse of Uncle Citiassist, total annual consumer spending here would rank us somewhere above Luxembourg. Odwalla drink every morning – $3, martini at the bar – $8, ticket to go to Oktoberfest in Germany – $700, free bag of Lays potato chips and urine-sample size of Dasani water – priceless. In fact, people spend multiple times the value of food or drink served just to reach the free food Shangri-la. I have seen people pay $20 cab fares for free nachos. It doesn’t make sense but it happens.

Again, a bag lunch outside of an RC classroom not only invites every vulture in the book, but also can cause an animal rights activitist to eat a pork sandwich because it comes in a bag with a $0 price tag. Weird, but true. We are obsessed with anything that comes without cost. Maybe it’s the innate business person in us or just maybe it’s our adherence to the old proverb “Never look a gift horse in the mouth,” even if the gift in question is indeed made of horse.

Regardless, there are no winners or losers here. Simply an observation from me in the home of the free (or is it the Whopper?). And as any good theory goes, I challenge you to test this paradigm of gratis behavior vis-a-vis anything.

“Oh! Free samples of Pert Plus at the career fair! I’m bald, but great, give me two!”

It goes on and on. I’ve seen more sampling of soup in the Grille then probably a professional soup tester at Campbell’s does in his or her lifetime. Regardless, just some (free) food for thought. Now, back to finishing this Rice Krispy treat!

October 11, 2005