February 21, 2013

FREE!!!-Effect on your Finance

What you feel when you see an advertisement where their is a word “FREE” with each product tag? We stare at that hoarding with both eyes and we go for detailed view. Reason for such an amaze is the word you saw “FREE”.

Consider below examples and act immediately. Suppose you are in a shop and saw a hoarding where they mentioned below offers. Which one you choose?

  • A gift worth Rs.1,000 FREE!!!
  • A gift worth Rs.2,000 at Rs.700

Studies conducted shows that majority will choose the first option. Reason is the word “FREE” attached with it. But when look economically, the second option have a better advantage. Because in the first one you are getting only one gift which is worth of Rs.1,000. But in the second option Rs.1,300 worth of gift is free (Rs.2,000-Rs.700). But out mind act quickly and select the product which is free.

Why this “FREE” is so powerful?

Research conducted at ” Research Center for Behavioral Economics and Decision-Making” showed that, their are two reasons behind this.

1) It makes us good-This is the reason why we always proudly share with friends and relative about the product which we got at free.

2) This “FREE” has no downward effect. Because we have not paid anything. So if something went wrong too then it will not effect us.

Now how we can attribute these results to the investment advice where one planner is asking for fee-only and another planner is pushing you the product?

The results are similar to we Indians too. We tend to follow the guy who offers us free. But not with the guy who ask us the fee. In reality you may be at loosing end if due to conflict of interest the second planner pushed you the wrong product.

Usually people attend free seminars but not the paid one. Look for the advice which is available at free of cost but not paid. When we look at any investment products and Google it for reviews then we are flooded with so many advice. So you may not think it is not necessary to go for paid service. But those are all generic reviews. Hence choosing a product is entirely based on each individuals needs not the generic need.

It is also proven world over that giving advice is the easiest job. But looking at genuine things and going with those are the real task which today’s investors need to do. So no harm in going with the product or service which is “FREE” but think twice about it’s impact in future 🙂

 

2 Comments

  1. A very good explanation on “free” vs “paid”!

    Reply
    • Sukhvinder-Thanks for your comment 🙂

      Reply

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