Catalina Ratala presents at ISDN

Purchasing decisions entail a cost-benefit type of computation, where the value derived from buying a specific item is traded-off to the disutility of having to pay a price. In this study, we specifically investigate the zero-price effect, where a product triggers abnormally high demand and inconsistency in consumers' preferences just because it is available for free. Previous research (Shampanier, Mazar & Ariely, 2007) describes this effect as a shift in preference: given a choice between a zero-priced product and a more valued product for an almost zero price, people chose the zero-priced product. Using a binary choice task in an fMRI session, we examine the underlying neural mechanism of this valuation bias.

40 participants (20 men) came to the lab. In a first session, participants viewed a set of 225 consumer goods, indicating their willingness to pay (WTP) for each of these products. Based on these WTPs we constructed binary pairs of stimuli: a “target” product and an “other” product (with a slightly higher WTP). This was done to ensure there is no preference for the “target” item. In a second experimental session participants performed a Choice Task while being in the MRI scanner. On each trial, they were presented with a choice between a ”target” and an “other” product, each associated with a price. The “target” item was sold for five prices: €0, €2, €4, €6 and a bonus price of +€2 (i.e. the participant received the product, plus an additional €2). The “other” product was correspondingly priced. The task was fully incentivized: out of 150 choices one was randomly selected and played out at the end of the experiment. 

Our behavioral results confirm the zero price effect: in the €0 condition participants chose the “target” item significantly more often than chance level. Importantly, there was no significant increase in choices for the “target” item in the +€2 condition compared to the €0 condition. This indicates that choices were not driven by payoff maximization. Choice behavior for the remaining conditions (€2, €4, €6) showed no difference from chance level. 

With respect to the fMRI data, the right anterior insula had larger activation in paying trials (€2, €4, €6) as opposed to €0 trials, implying a less aversive perception of the zero-priced products. Importantly, comparing the difference between a price of  €6 versus a price of €4 with the difference between a price of  €2 versus a €0 price, we find enhanced ventromedial prefrontal cortex (VMPFC) activity, indicative of the higher value of free items. 

We show that zero-priced products are indeed chosen more often over slightly more valued alternatives. Our findings may constitute the first insight into understanding the neural mechanism behind the zero-price bias.