Tanstaafl

One day I was dosing off in my high school econ class when my somewhat eccentric teacher started shouting in a strange language. “TANSTAAFL! TANSTAAFL! There ain’t no such thing as a free lunch!” This sudden outburst jolted me awake.

What was this crazy man doing? And what was he yelling? And why is he wearing a mustard yellow tie?

He paused momentarily to write it out on the board. TANSTAAFL.

Pointing to each letter, he explained what the letters stood for: There Ain’t No Such Thing As A Free Lunch.

For a man who filled my head with more cobwebs than ideas, I immediately was skeptical of the concept that he was trying to teach the class. However, something tinged inside of me, and I knew that I should pay attention. Little did I know that the crazy man in front would give me an entirely new set of colored glasses to view the world through that day.

The concept is easy enough. No rational human being, and in turn companies controlled by humans, is going to give you something (most often conceptualized as money) without some sort of reciprocation.

Thank you professor, your mustard yellow tie helped me learn an important concept.

Applications of Tanstaafl

The beautiful thing about Tanstaafl is that it can be used in many different circumstances. Once you shift your paradigm of the world and put on Tanstaafl shaded glasses, you will see what I mean.

I would say that a large portion of advertising uses free offers as an enticement, although I’m not definitively sure of this because I haven’t had television in my house for years. When I do see some TV, I’m absolutely amazed at how many ads there are, and how inaccurate and deceitful they are.

With Tanstaafl glasses, ads that promote things like ‘buy one get one free’ are pulling wool over your eyes. The second item you get isn’t free, you’re paying for it in the price of the first item.

How about free offers? How free can they be?

Well it really depends on this one. Sometimes, instead of money, you’re trading something else. What I’ve seen most often is either an automatic enrollment system, where you get the first copy or first service for free, and you’re signing up to get a year’s worth of whatever. The easiest example of this is in cell phone plans, where you get one month for free, or in rental properties. In these systems, you end up paying for the first time throughout the rest of the contract.

An alternative of this is the optional enrollment system. This is the same as the first, but they give you an option to opt out of the product or service. A great example of this is magazines. They’ll give you a copy of a magazine for free, in exchange for your billing information. Unless you mail them a letter opting out, they’ll charge you per month for a subscription. Very few people must actually opt out after the first magazine in order for the company to make it worth it to give magazines away for free. Although you can ‘break’ tanstaafl with this model, it’s understandable how a company can give something away for free in exchange for a high probability that they’ll make a profit from it.

Another form of a free offer that I’ve seen is the “we’ll give it to you for free, but….” format. This is best exemplified by timeshares. They will legitimately give you a free night, but you have to go to their sales pitch. These sales pitches are often long and high pressure, coercing many people to purchase the timeshare. This is similar to the magazine example in that they ‘break’ tanstaafl, but with a high probability that they will make a profit on it.

What about contests? Contests have a few different rationales behind them. Often, they’re used as a marketing tool. For instance, right now in the Luxor in Las Vegas (where I’m staying), they’re having a contest giving away Criss Angel’s Corvette. This is a promotion for the Criss Angel Believeā„¢ show that they are playing nearly nightly. Another example is a restaurant giving you a free glass of champagne, in which they expect you to stay and eat.

Sometimes contests are used as an info-gathering device. By giving your information, they can send advertisements to you, and earn money off of the advertisers.

There are many other forms of free giveaways out there, and none of them truly get past the concept of tanstaafl. Whenever someone is promoting something for free, I urge you to look behind the enticing offer, and discover their motive for giving something away for free. By discovering their motives, you will protect yourself and your wallet from being taken advantage of. Also, you will gain a greater clarity and truth of how the world operates, allowing you to make better choices. Thanks professor, for teaching us a truth.

Neal

1 Comment

  1. Scott Hall
    ·

    My rule is this: My time is $90/hour. For example, I often get offers to listen to a “90 minute-no obligation” time share offer so that I can draw for my free prize. Free prizes include ” a Corvette, a free trip to Vegas, and etc. He’s my Timeshare formula: M PV , M = my cost, PV = prize value. M = 90H, H = hours spend traveling to/from+fuel/depreciation+hours listening/begging to get out.

    example, travel/presentation time = 3 hours + 40 mile round trip (50 cents/mile) 3(90)+20 = $290. My cost is $290.

    Prize value: 2010 Corvette, value = $50,000. Chances in winning = 1 in 1000. PV = $50,000 (0.001) = $50.

    Since M = $290, PV = $50. Since M>PV, my cost is greater than the prize value. Therefore, It makes no sense to me to visit the Timeshare to get my “free prize”. Of course I would likely win the Vegas Trip, However. Let’s say the hotel fare is $500. I still have to make my own flight plans ($250 RT for two). Therefore, M = $290+250 = $540 which is greater than $500.

    Why is my time worth $90/hr. I make far less than that at work. However, I value my time because once its gone, I won’t get it back.

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