Discussion
Why free stuff makes us irrational
867762462f: One interesting angle here is how “free” changes not just user behavior, but also how builders interpret demand.In AI products especially, it's very easy to mistake “engagement” for “real demand” — because when things are free, people try everything. You get signals, but many of them are noisy or even misleading.I’ve been thinking about this a lot in the context of marketing tools: instead of optimizing for more exposure or more content, maybe the harder problem is filtering out false positives — figuring out where genuine demand actually exists.Otherwise, we might just be scaling irrational behavior on both sides: users consuming free stuff, and builders chasing the wrong signals.
pdonis: I think this is exactly what's been happening ever since the ad-supported business model for the Internet began to spread. None of the big tech companies know what their services are actually worth to their users. The only way to really find out would be to have users pay for them, but that's a nonstarter now.
ranger_danger: I was hoping this would talk about the hordes of ungrateful users demanding more and more free labor from the unpaid volunteers of open source projects, but I guess we still don't know how to deal with that properly.
AnthonyMouse: What something is worth and what it costs are two different things. The big correlation is that if something costs more to produce than it's worth to the customer, nobody is going to make it. But if it costs less to produce than it's worth, who gets the surplus? In a competitive market, it's mostly the consumer rather than the supplier, because customers pick the supplier with the best price.What ad-supported services did is zero out the price of anything that costs less to provide than the amount of ad revenue it generates. But the amount of ad revenue companies get per-user is already pretty small and companies are demonstrably willing to provide the existing services for that amount of money, so we know the upper bound and it's not that high.
ks2048: Dividing by 0 is very different than dividing by 0.0001
mememememememo: There is no zero. Your attention is worth something. I often ignore free promo competitions etc. for that reason.
mememememememo: I just don't like Lindt it is a matter of preference. Better to compare apples with apples. E.g. free kg of choc. 2kg for $1.
pdonis: > What something is worth and what it costs are two different things.Yes, surplus is a thing, I agree. But that doesn't materially change what I said. The thing still has to be worth at least as much as it costs for users to be willing to pay for it, so what users will pay at least sets a lower bound on what the thing is worth to users. (Note that it can be worth different amounts to different users; the more precise way of stating it would be that in a competitive market, price equals marginal cost equals marginal value, i.e., value to the marginal user, the user who just breaks even paying that price for it.)> What ad-supported services did is zero out the price of anything that costs less to provide than the amount of ad revenue it generates.Which also uncouples the price from any measure of value to the user. The price is now measuring the marginal value to the ad purchasers. The value to the users can be anything greater than zero--the fact that they're using it at all means (or should mean, if the users are rational) that the value to them is positive. But it could still be less than the cost to produce. And the worse the user experience gets, the more likely it is that the value to users is less than the cost to produce, even if that cost is small.Plus, there's a whole other piece of this that the analysis we've just done doesn't even capture: externalities. One simple way of stating what many people think is wrong with the ad-supported business model is that it creates large negative externalities that, on net, mean that the value to users is negative--but the users don't see the externalities so they don't realize this, and the tech companies have offloaded the costs of the externalities onto others, so they don't see them either.
donatj: I feel like this fails to consider my own valuing of my time.Free Chocolate? Sure.13¢ chocolate? I've gotta try to make change? An awkward amount no less. I didn't even want a chocolate. I don't have any cash on me. Do you take card?For instance, when I'm buying something off Facebook marketplace, if the items not a multiple of $20 bills and $50 bills, I'm far less likely to buy it because after the ATM I have to go somewhere and make change. It's a pain in the butt.I have literally overpaid for things from marketplace to avoid making change.But if my only options are 1¢ chocolate versus 13¢ chocolate, those are on way closer footing because either way I have to dig my wallet out.I'd still take the Hershey kiss though because it tastes better.
djmips: precisely!
measurablefunc: Yes, it's well known that money & prices are what make people act rationally. We'd still be slinging mud & rocks if it wasn't for money & prices.
bredren: I also didn’t like the example. How may people know the difference between chocolate quality?Some for sure, but I wouldn’t count on it for interpreting price elasticity.I still believe in the premise because of the action on Facebook buy nothing groups.
II2II: The trouble with those examples is they assume a motivation from a behaviour. Such is the root of so many of the world's troubles.
chairmansteve: "None of the big tech companies know what their services are actually worth to their users".The users are the product. They sell their attention to the advertisers. And they know exactly how much that attention is worth, because they use auctions to set the price.
aschla: I'll never understand the people who stand in line for an hour for "Free donut day" or something similar. You really value a $1.50 donut equal to an hour of your time?
charcircuit: Try thinking of it as if the options are watching TikTok for an hour vs watching TikTok for an hour in a line, plus you get a free donut. Standing in the line doesn't cause the person to miss out anything.
