Friday, June 8, 2012

"Absolutely Free Forever", or the Zero-Risk Bias

Honest Abe
Honest Abe (Photo credit: jeff_golden)
Human naturally avoid risk. It is part of our survival instinct. It also leads us to "conserve" our own resources. However, this also leads us to make the WRONG decisions when presented the data presented in a certain way to APPEAR as if risk is lower.

For example, let's say I give you two scenarios, and ask you to pick one:

1) I give you $50, then flip a coin. if it's heads, I take back the $50.

2) I flip a coin. If it's tails, I give you $50.

Which one would you pick?

Majority of "you" will pick option 2, even though the odds are exactly the same: 50% of getting $50. People AVOID the idea of "losing". There's a chance of "losing" in option 1, thus people avoid that.

But there's more....

There is another version of this problem. When asked to choose between two versions of risk reduction: reduce risk subtype A from 5% to 0%, or reduce risk subtype B from 50% to 25%, when they cost the same, people would tend to pick the 5% to 0%, even though arguably the 50% to 25% would do far more good.

Another way this bias manifests itself how we react to the word "free" without considering the "fine print". FREE is the most powerful word in advertising (next is sex). But as the old cliche goes, "There ain't no free lunch.". There is some sort of price to be paid, it just probably ain't money.

A lot of pseudo-MLM schemes offer a free option, where you can join, and enjoy SOME of the benefits, but cannot "earn income" as a free member. Usually this is one of those hybrid schemes where people just recruit people (i.e. recruitment game). They point at the FREE members and claim they are not a pyramid because members don't pay. What they don't mention is members *can* pay... and MUST pay if they want to earn money. They choose one part of the business, and pretend it is the whole business.

Sherlock Holmes
Sherlock Holmes (Photo credit:
Another way "free" can trick you is in the old Sherlock Holmes story, "The Red-Headed League".  The story can roughly be summarized as... a red-headed man got this incredibly easy job of transcribing an encyclopedia by hand, and suddenly the job ended and the patron is nowhere to be found. Sherlock Holmes is on the case! What really happened is the whole "easy job" is just a ruse to get the guy out of the house so his "assistant" can do some digging in the basement to break into a bank vault next door!

The point is, the red-headed man is a "victim" of fraud even though he "benefited", and what you see is not always what you get!

When a company offers you "free share in income, just recruit a lot of people for us", will you say it's a scam, or believe it with your whole heart? Supposedly, six million people did believe it. Is it a scam? I don't know. Did it ask for a lot of personal information? Absolutely. So it is NOT FREE.

Don't believe the "free" offer. There is always some sort of a price to pay.
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