Denny’s made headlines earlier this week with its Tuesday promo offering a free Grand Slam breakfast to anyone who showed up at almost all its US locations. A Grand Slam retails for about $6.  Most customers remembered to tip, a USA Today reporter covering the promotion noted, so in essence, this amounted to a gain to each customer of $5 worth of merchandise.

Now, $5 is not a huge sum of money to save. It’s the rare coupon clipper who couldn’t save $5 with a few deft scissor strokes.  You can save $5 a month on gas by easing up on the accelerator, and most people would not get terribly excited if, say, a $40 sports radio were marked down to $35.

But Denny’s promotion was about something being “free,” and that changes the psychology a great deal. As Dan Ariely, a business prof, told USA Today, “Free is an emotional hot button. When free is concerned, there is no downside — or, at least, we don’t see the downside immediately. So we overvalue everything that is free.”

This is certainly the case with the Denny’s promo. Tales are legion of people waiting 40 minutes to over an hour — often outside in the cold — to get their “free” Grand Slam. I am not surprised. Several years ago, I was in San Francisco when a local company was doing a green lamp promo. You turned in any old lamp that was junked in your attic, and got a new free energy efficient one. People were lined up for blocks. A few weeks ago, I witnessed people standing in an hour-plus long line outside Saks Fifth Avenue, apparently waiting for a free gift the story was offering.

Yes, we overvalue what is free compared to the actual monetary savings. Would you line up outside in a cold Wal-Mart parking lot for an hour the day after Thanksgiving if they were only offering $5 off the cost of flat-screen TVs or Wiis? Of course not. We also don’t calculate the downside — mostly, the price of time. The US minimum wage is $6.55. After taxes for most people who earn minimum wage, this still comes out to more than $5 per hour.

The issue, as I discussed in my “Craig’s List Economy” post, is that we don’t believe time can be easily converted into money. So we tend to look for ways to save money within our certain set budgets — be they our salaries, wages, or even unemployment checks — and not for ways to expand our budgets by converting more time into money.  This may have been smart when the labor market was less flexible. But these days, even in a rough economy, there’s always some moonlighting project on Craig’s List that’s out there.

So anyway, what does this mean for people who are trying to behave in a rational fashion? If you love Denny’s, fine. Go on a day when the lines are shorter! As for this past Tuesday, from an economics perspective, it would be better to pay $5 at McDonalds for breakfast and do something more productive with the hour you save.

This is why, on occasion, I’ve paid $3 for an ice cream cone at Baskin Robbins on Ben & Jerry’s free cone day. I satisfy my sweet tooth, get my cone quick (because there is no one else at Baskin Robbins on B&J free cone day), and get to smirk at all the people waiting in lines around the block!