Gratis Kills Agency

People love getting stuff for free. Unfortunately, this love for gratis shuts off our brains and often deprives us of agency.

We intuitively see money prices as barriers to getting what we want. Why not simply dispense with this obstacle between me and my favorite goods and services? Isn’t it lovely to have the things and also be able to keep the money? Economists shriek at this kind of sophistry. The world functions better when goods and services are allocated using prices. You can’t simply set the prices to zero and consume the cornucopia that was formerly cordoned off to you. The amount of stuff available for consumption is still finite, and other people want it as much as or perhaps more than you do. (Gee, if only there were a way to break this “tie” of all potential consumers chanting “No, I want it more!”) And that’s just for the stuff that’s currently on the shelves. Obviously if you set prices to zero, producers won’t bother to produce anything and retailers won’t bother to stock anything. In round 2, running the simulation at time t > 0, the shelves are barren and they stay that way forever.

That’s all obvious Econ 101 stuff, the unassailable logic of the market. (Well, unassailable except by the most impenetrable of skulls). But of course there are examples in our personal lives of “getting stuff for free”, or at any rate getting stuff without making a monetary payment. In many cases it completely poisons our ability to make rational decisions. We are applying “Bazaar haggling” mentality, staking out an unreasonable position to personally gain some kind of advantage, when we should be thinking through the Econ 101 consequences of setting prices to zero. We live in an impoverished world because of it. Sometimes the haggler manages to convince everyone that they are, indeed, a hard-headed, unreasonable curmudgeon who won’t budge on the zero-price that he’s used to. (They certainly manage to convince me.) There is something special about a price of zero that renders us totally irrational.

In healthcare, we’ve staked out this position that “everything should be free”. The insurer, who might be the government or may be a private health insurer, should simply cover the entire bill. People speak gleefully of “maxing out their annual deductible” so that the remainder of the year’s expenses are fully covered. Like I said, it’s nice getting something for free, and there’s nothing wrong with a fortuitous waived co-pay that would have cost you $50. But the expectation of free medicine poisons our ability to make decisions about our own care. A doctor was explaining to me the headache of arguing with insurance companies about covering some kind of treatment, something he deemed “necessary.” This is apparently a common waste of the doctor’s time, and it makes me weep that their time is spent on such low-value tasks. But the solution is not “third party payers simply shell out for anything a doctor deems ‘necessary’”. In this recent example I have in mind, the doctor was arguing for a higher quality version of some drug or nutrient supplement. I’m weeping because why in the hell can’t the patient simply opt for the better quality medicine? If they actually want it, or if they agree with he doctor that the higher quality justifies the higher cost, they should have the wherewithal to simply cut a check and pay for the medicine out of pocket. If the lesser quality medicine that the insurer wants to pay for is, in fact adequate (as I suspect it often is when a doctor is advocating for a “necessary” treatment), they can settle for that. Patients and doctors are right to be frustrated by these ridiculous fights, but they have mislocated the source of the problem. We have this psychological obsession with perceiving medicine as “free at the point of care”, and we construct these grand facades to fool ourselves into thinking we’re getting it. The result is that we spend more on healthcare. We get worse outcomes than we’d get if we simply saved back dollars spent on taxes and insurance premiums and paid out of pocket. We’re paying dearly to indulge this fantasy that medicine is free.

(I wrote an entire piece about this here; please read it before you scold me about some patients’ inability to pay. There is a better way to handle this. Dickensian poverty deaths due specifically to the unaffordability of medicine are a grossly exaggerated problem, and people would have the wherewithal to obtain medicine if we gave them direct cash transfers instead of trying to make the price zero. The need for indigent care is not an argument for screwing up the market for medicine as experienced by the median patient.)

Another example (one with far fewer political implications) is my home work setup. For a few months after Covid started in March 2020, I was working from home, hunched over a tiny laptop screen. I would sit at the kitchen counter or the table and peck out R code on a tiny keyboard. This was totally inadequate, and I eventually got myself a nice desk, a big monitor with an adjustable arm mount, an ergonomic keyboard, a webcam, a wireless headset, and a nice office chair. I could have probably worked through Acquisitions to get some of this stuff paid for by the company, but I wanted to own my workstation anyway. After recently hearing a co-worker repeatedly complain about the keyboard setup of his new laptop, I eventually said something like, “Dude, get yourself whatever keyboard you like for your home workstation.” I was saddened to discover that he didn’t have any such setup. The unsustainable situation I’d gotten sick of after a couple of months, he’d continued putting up with for five and half years. Now, an employer should provide you with some minimal home office stuff, like a basic keyboard, mouse and monitor. Most companies with remote or hybrid employees do exactly this. But for crying out loud, don’t simply settle for the free stuff. If a bigger screen or keyboard make you even 1% more productive, then it’s worth the trivial expense to shell out for this basic equipment. And that’s not to mention the obvious frustration it saves you. It seems like such a weak, low-agency move to whine about an easily solvable problem. This kind of paralysis comes from expecting stuff for free and resenting the cheap employer who won’t pay for it. My take is: get over yourself and show some agency. If the expense is worth it to you, shell out the cash and take ownership. An ergonomic keyboard is more comfortable to type on, and a little faster, too, for any tasks where typing speed is a bottleneck. A much larger screen saves me a lot of frustration when trying to visualize multiple open apps. Mind you, I’m not shelling out my own cash for productivity that benefits my employer. Getting my tasks done faster and with less emotional agony benefits me directly, and in a functional organization you generally get recognized and appreciated for your contributions. (If you don’t work for such an organization, consider switching employers, if feasible.)

Customers whine when companies unbundle services, even though they also complain about excessive bundling. There was shrill kvetching a couple of years ago when airlines started charging explicit fees for baggage handling. A rational person with an extremely basic understanding of economics would simply see this as the airline setting differential pricing, charging more for the customers who incur greater costs. A thick skulled consumer with the Bazaar haggler mindset doesn’t see it this way. He simply stakes out an unreasonable position in hopes of getting a favorable treatment. “Wait, that was free before, and now it’s not!” In the space of cable TV, I recall a channel being moved out of the standard package, but it was still available as part of a premium bundle or individual subscription. This was after decades of “consumer watchdogs” complaining that “cable companies are charging us for all these channels we don’t want.” Okay, so some consumers wanted channels broken out by itemized list prices so they could pick a minimalistic bundle and save money, and they felt they were denied that level of agency. But the reaction to moving some channels out of the standard bundle was “They’re just trying to charge me more for the same package.” You can say there’s at least a tension in these positions, if not an outright contradiction. Alex Tabarrok calls this The Happy Meal Fallacy, the delusion that you can make customers better off by mandating that burgers come with “free” fries and a drink.

I can think of other examples of people exhibiting shitty behavior when they expect something for free. In a recent social media post, I observed random people interrogating the question of whether your insurer should buy you a new roof after a thunderstorm blows off some shingles. In some people’s minds, paying insurance premiums is an infinite license to get free home repairs, never mind the policy terms such as deductibles and coverage exclusions. Most property insurers have been moving toward higher deductibles and “actual cash value” for roof replacements. In other words, a 20 year old roof is only worth $2-3k after depreciation, even if it costs ten times that much to replace it. So prepare to shell out and replace your roof every 20 years or so like a responsible homeowner, and read your policy terms carefully. (On the other hand, if your brand new roof gets damaged, that is absolutely the purview of insurance and a typical policy will cover most of the cost.) The price of the formerly free service is generally not prohibitive. Sometimes it’s large, as in the expense of replacing a roof, but it’s a built-in expense of living, the kind of thing that you’re expected to incur over a typical human lifetime. It’s not made more affordable by setting the price to zero or making someone else pay for it.

This post is mostly about getting stuff for free, but the same phenomenon exists with respect to resenting price increases. We have the same reaction when the price goes from X to X + epsilon. Yes, it sucks that inflation is always causing prices to go up, and it sucks that the scarcity of specific goods causes them to get more expensive (inflation aside). But mostly we should be happy to live in a world that’s governed by market prices, and we should resist the urge to move transactions outside of that realm. Some amount of haggling is fine in edge cases, and many companies explicitly invite this with coupons and promotions. That is all for the good, and it’s a built in part of our system. But mostly we should accept that we live in a world of list prices, and that those prices roughly speaking reflect the cost of getting that good or service to the consumer. Those prices can and ought to change due to market conditions, which sometimes feels like “paying more for the same stuff” from the point of view of the consumer. Contra the impression of most economic commentators, profit margins are razor thin for most industries. There just isn’t a huge surplus to split. So any amount of haggling the price down is within a hair’s breadth of rendering the transaction pointless from the providers point of view.