Battle royal: Zero-price effect vs relative vs referent thinking

Abstract

This article confronts three psychological influences: relative thinking, referent thinking, and the zero-price effect. The experiment conducted in the context of bundles with complementary components, confirms previous evidence around the dominance patterns between relative and referent thinking when the bargain is a discount; however, when the discount is changed to a free product (worth the same as the discount), the zero-price effect arises. Specifically: (1) if actual price coincides with expected price, relative thinking is the norm, unless the zero-price effect appears; (2) if actual price moderately deviates from expected price, referent thinking is superior to any other effects, relative thinking and the zero-price effect; and (3) if the deviation is extreme, a battle royal among influences takes place: relative thinking beats referent thinking as long as the zero-price effect does not appear. If the zero-price effect is present, it will cancel referent thinking and reverse relative thinking.