Words Matter: Rebate, Bonus, or Free Money?

One of the reasons I find economics is fascinating is that many of its assumptions and research are based on psychology. Here is a timely example:

(Nicholas Epley, “Rebate Psychology,” New York Times, January 31, 2008)

Save your “rebate” or spend your “bonus?” This findings of one study: give $50 to one group of volunteers and call it a “rebate,” give $50 to another group and call it a “bonus.” Result: Those who received “bonuses” spent far more of their money than those who received a “rebate.”

What if they simply called it “free money?” As in “free lunch?” Rats, that sensible economist Milton Friedman reminds me that TANSTAAFL (“There Ain’t No Such Thing As A Free Lunch”).

Jonathan Bean is a Research Fellow at the Independent Institute and editor of the Independent book, Race & Liberty in America: The Essential Reader.
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