The Psychology Of Freebies: Why People Reject Generous Offers

This intriguing finding is part of a new study conducted across the United States and Iran, involving 10 experiments and over 4,000 participants. The research reveals that people tend to reject overly generous offers due to a phenomenon known as “phantom costs”, hidden risks or downsides that they suspect must be lurking behind the offer.

The Cookie Conundrum

In one of the experiments, participants were given the option to eat a free cookie. When no money was offered in addition to the cookie, twice as many people agreed to eat it. However, when payment was introduced along with the free cookie, fewer people were willing to accept the offer. Why? People began to imagine all sorts of hidden dangers. They questioned whether the cookie might be contaminated, perhaps poisoned or spat on. Others worried they’d owe the person offering the cookie a favor in return, leading to an uncomfortable sense of obligation.

These reactions might seem irrational, but they point to an important aspect of human psychology. As social creatures, we often search for hidden motives behind others’ behaviors, especially when the deal seems too good to be true. It’s not just about the economic value of the offer, it’s about the potential hidden costs we believe may come along with it.

Phantom Costs and Job Offers

The cookie experiment was only one part of the broader research. Another study asked participants to imagine they were truck drivers searching for a job online. All job listings were described similarly, but the hourly wage varied. When participants were offered a typical wage of USD 15 per hour, most were happy to take the job. However, when the wage was higher, say, USD 20 or USD 25 per hour, participants began imagining that the job would involve more responsibilities or harder work. Still, they considered this reasonable, given the higher pay.

Things took a turn when participants were offered an absurdly high wage, over USD 900 per hour. At this point, most people rejected the job, even though they had previously been willing to do the same work for just USD 15 per hour. The reason? They suspected significant hidden risks. Participants imagined scenarios like being forced to transport dangerous goods, smuggle drugs, or drive for criminal organizations. The higher the wage, the worse the imagined risks became.

Global Patterns of Suspicion

This pattern of distrust isn't confined to one region or culture. The study repeated these experiments with different jobs, varying wages, and participants from both the United States and Iran. Despite the stark differences in economic landscapes between the two countries, the results were strikingly similar. In both places, people showed the same tendency to reject offers that seemed too generous. The only difference was that in Iran, the baseline wages were lower, meaning the offers didn’t need to be as high to arouse suspicion.

The research reveals a universal truth about human behavior: when something seems too good to be true, we tend to think it probably is. Whether its cookies, job offers, or cheap flights, people are naturally inclined to search for hidden downsides.

Plane Tickets and Phantom Costs

The research also explored how phantom costs influence consumer choices in other contexts. In one experiment, participants were asked to choose between three hypothetical flights. The first flight cost USD 235, the second cost USD 275, and the third cost just USD 205. Unsurprisingly, most people chose the cheapest option.

But when the price of the third flight was lowered to an impossibly cheap USD 15, almost no one chose it. Participants imagined terrible reasons for the low price—many feared the plane might crash or be targeted by terrorists. In this case, the price was so low that people could only assume something was seriously wrong with the flight.

Interestingly, when researchers provided an explanation for the low price—such as the seats being very uncomfortable—participants were more willing to choose the USD 15 flight. Although uncomfortable seats are not a selling point, they provided a reasonable explanation for the low price, alleviating participants’ fears of more dangerous phantom costs. In other words, people need a sufficient reason to believe that a great deal isn’t hiding something far worse.

Navigating Good Deals and Consumer Trust

This research highlights the delicate balance required when offering discounts or promotions for businesses. On one hand, consumers, especially those who are price-sensitive, are always looking for a good deal. On the other hand, overly generous offers may backfire, as customers begin to suspect phantom costs and reject the offer altogether.

To combat this, companies need to clearly communicate why a deal is being offered. For example, labeling a sale as an “end-of-season” or “holiday” promotion provides a logical reason for the discounted prices and reassures customers that there’s no hidden catch. Similarly, in the job market, framing a pay raise as a reward for “good performance” can help avoid the suspicion that the raise comes with added responsibilities or other hidden downsides.

People Are More Than Economic Beings

At the core of this research is the idea that people are not just economic decision-makers; they are complex, social beings who look beyond face value to assess the motives of others. When faced with an offer that seems too good to be true, our instincts kick in, leading us to question the offer and search for hidden costs. This ability to read into others' intentions serves as a protective mechanism, helping us avoid situations where we might be taken advantage of.

This research also highlights the importance of trust in economic exchanges. Whether it's accepting a free cookie, taking a job, or buying a plane ticket, people need to feel confident that the deal they’re being offered is genuine and not a trap.

By recognizing and addressing these psychological tendencies, businesses can foster greater trust with consumers, ensuring that their good deals are seen as just that—good deals, not something to be suspicious of.