## Do you pick free shipping or pay for it at Amazon.com?

In his book Predictably Irrational, Dan Ariely talks about how we treat money as percentages instead of absolutes. For example,

You can buy a nice pen for \$25 at a store you are in. Then you remember (or are told) the exact same pen can be had for \$18 at another store that is a 15-minute walk away. Most people will take the walk. But if someone is about to buy a suit for \$455 and finds out he can get the exact same thing for \$448 by walking to another store 15 minutes distant, he will not, if he is like most people, bother to walk there.

The explanation for this comes from Prospect Theory, the decision context (and framing)  our decision making, even though  the absolute result is the same and context and framing are irrelevant according to rational expected utility theory.

The same goes when picking shipping option for Amazon.  The claim is that all thing being equal,  those who generally prefer the free shipping option for small purchases (\$25-\$70) will pick the paid option for larger purchases (>\$80).  I do not have statistically significant data to verify but from the few informal queries I did with my colleagues it appears to be the case.

Next time you order something big from Amazon.com, (all things being equal and you are not in hurry to get your hands on the item) see what shipping option you check. When buying something for \$100, the \$4 additional shipping does not look much, whereas it  does when you order for \$25.