Predictably Irrational: The Hidden Forces That Shape Our Decisionsby Dan Ariely Published 19 Feb 2008
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Why do our headaches persist after taking a one-cent aspirin but disappear when we take a 50-cent aspirin?
Why does recalling the Ten Commandments reduce our tendency to lie, even when we couldn't possibly be caught?
Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?
Why do we go back for second helpings at the unlimited buffet, even when our stomachs are already full?
And how did we ever start spending $4.15 on a cup of coffee when, just a few years ago, we used to pay less than a dollar?
When it comes to making decisions in our lives, we think we're in control. We think we're making smart, rational choices. But are we?
In a series of illuminating, often surprising experiments, MIT behavioral economist Dan Ariely refutes the common assumption that we behave in fundamentally rational ways. Blending everyday experience with groundbreaking research, Ariely explains how expectations, emotions, social norms, and other invisible, seemingly illogical forces skew our reasoning abilities.
Not only do we make astonishingly simple mistakes every day, but we make the same "types" of mistakes, Ariely discovers. We consistently overpay, underestimate, and procrastinate. We fail to understand the profound effects of our emotions on what we want, and we overvalue what we already own. Yet these misguided behaviors are neither random nor senseless. They're systematic and predictable--making us "predictably" irrational.
From drinking coffee to losing weight, from buying a car to choosing a romantic partner, Ariely explains how to break through these systematic patterns of thought to make better decisions. "Predictably Irrational" will change the way we interact with the world--one small decision at a time.
"Predictably Irrational: The Hidden Forces That Shape Our Decisions" Reviews
Written in the tried-and-tested and bestselling tradition of the Malcolm Gladwell books and the Frekonomics clones, Dan Ariely's book too is an entertaining and counter-intuitive look at the world around us.
While I am getting more and more inured to this way of analysis of behavioral economics and physchology, these kinds of books are still hard to resist - that is because they do, no matter if they have now become an industry doling out similiar books by the dozens, still stretch our perspectives about the things we normally take for granted or think unworthy of a second thought. In that sense then, this book was "unputdownable" and "highly instructive".
One of my favorite passages from the book is as follows -
"I suspect that one answer lies in the realm of social norms. As we learned in our experiments, cash will take you only so far—social norms are the forces that can make a difference in the long run. Instead of focusing the attention of the teachers, parents, and kids on test scores, salaries, and competitions, it might be better to instill in all of us a sense of purpose, mission, and pride in education. To do this we certainly can't take the path of market norms. The Beatles proclaimed some time ago that you "Can't Buy Me Love" and this also applies to the love of learning—you can't buy it; and if you try, you might chase it away.
So how can we improve the educational system? We should probably first rethink school curricula, and link them in more obvious ways to social goals (elimination of poverty and crime, elevation of human rights, etc.), technological goals (boosting energy conservation, space exploration, nanotechnology, etc.), and medical goals (cures for cancer, diabetes, obesity, etc.) that we care about as a society. This way the students, teachers, and parents might see the larger point in education and become more enthusiastic and motivated about it.
We should also work hard on making education a goal in itself, and stop confusing the number of hours students spend in school with the quality of the education they get. Kids can get excited about many things (baseball, for example), and it is our challenge as a society to make them want to know as much about Nobel laureates as they now know about baseball players. I am not suggesting that igniting a social passion for education is simple; but if we succeed in doing so, the value could be immense."
This is in the same wavelength as some of my thoughts on education -
The point is not to have a vocation oriented educational system, but rather to have a Goal-Oriented one...
I think that the abstractness in what the students want to achieve is a problem arising directly from an abstract education.
A system which promotes and encourages students to fix goals in life early and then helps them in moving towards it and rewards them for moving towards it is my vision of Utopia in Education :) -
There will not be specific courses and subjects being taught in schools and universities but there will be Goal-oriented teams formed with advisors for them and they work together to learn, understand and develop themselves in any field or knowledge that is required to fulfill their stated goals...
I am hoping to convert this idea on education into a short story or incorporate it into my ongoing novel. So the book helped me crystallize that thought.
Sorry for the tangent. Getting back to the book, one more caveat - the author loses the plot a bit in the middle chapters. The beginning chapters about relativity and the power of zero were amusing and fun and the last two chapters on honesty is amazing, but the chapters in between was a bit of a drag.
Despite my mocking tone and slightly negative review, I will hurry to say that it is a very good purchase for anyone who enjoyed Gladwell's books or others of that genre, and also for marketeers and businessmen and maybe even for policy makers.
Despite sugar coating the book with the requirements of this genre/industry, Dan does raise some poignant questions about human nature and consumer behavior that is worth pondering over. In the final analysis then, I enjoyed the book and will read it again, and hence, four stars.
Honestly all the business books that talk about psychological research or behavioral economics talk about the same things. I haven't even read Thinking Fast and Slow by Daniel Kahneman but all these books literally rehash it again and again so I probably wouldn't even get anything out of reading it now. That said this one's much better written than most of the other books I've read and so if you haven't read anything else about behavioral economics or that way we make decisions this is a good choice. If you have read other books on those things though I'd skip this one because it doesn't add anything new.
All classic economic theories are based on the assumption that consumers behave rationally, despite a considerable body of evidence to the contrary. It is only in the last 25 years that economists have begun to investigate the irrational side of consumer behavior. This field of investigation, which started with the pioneering work of Tversky and Kahneman, is usually referred to as behavioral economics.
Dan Ariely's book, "Predictably Irrational", offers a clear and comprehensive overview of this fascinating subject. If you are the kind of person (like me) who can't imagine using the words 'fascinating' and 'economics' in the same sentence, don't worry, the primary focus of the book is human behavior and its peculiarities, rather than economic theory. In particular, the author is concerned with elucidating how and why people continue to engage in behavior patterns that are detrimental in the long term.
In thirteen well-written chapters, Ariely considers such topics as:
• The effect of our need for a reference point before we can judge the value of something, and how clever marketers can exploit this
• How we can become trapped by our own behavior - the importance of first decisions
• How the prospect of getting something free can override reason and logic (is it really smart to wait for free-entrance night at the museum?)
• The effect of social norms (why you are more likely to agree to help your local charity by working for nothing, than for a quarter of your normal professional rate)
• The influence of arousal (we behave irrationally in the throes of passion - what you can do about it)
• The problems of procrastination and self-control
• Our tendency to place too much value on what we already own
• The destructive consequences of people's tendency to want to keep as many options open for as long as possible
• How our expectations of something can actually influence our ability to enjoy it
• The power of price (response to a $2.50 placebo is better than that to a 10c placebo)
• In what situations are people particularly likely to behave dishonestly? How can the triggers for dishonest behavior be disarmed?
The book is based primarily on work that Ariely has done with colleagues at M.I.T. and elsewhere. Two features make the book exceptional, in my opinion:
The ability of Ariely and colleagues to devise really neat experiments to test their hypotheses. All of the conclusions in the book are convincingly supported by often remarkably clever experiments.
Ariely does an extraordinary job of making his material interesting and accessible to a general audience. The book was a joy to read.
I highly recommend "Predictably Irrational".
As a social psychologist, I have been trained to scoff at all "behavioral economists" because they often claim to have recently discovered that individuals do not always behave "rationally". Furthermore, they seem to brilliantly deduce that the only way to accurately predict how humans actually behave is to test behavior/decision making empirically. Of course, social psychologists have been doing this for over half a century without much public fanfare or guest spots on "MSNBC" or "CNN" every time people want to know how consumers make decisions.
With this clear bias of mine in mind, this isn't a bad book. Ariely at least gives full credit to Tversky and Kahneman's influence on his work (both psychologists), and he describes his experiments in clear, easy-to-understand language for the non-scientist reader. The big "however" with this book is Ariely's tendency to extrapolate beyond the results of his studies with recommendations concerning public policy and personal solutions for individuals. Not that his advice is necessarily wrong, but it should always be made clear where the data stop and the personal advice begins. I would recommend this book to my non-social psychologist friends.
My notes and quotes:
Ariely is a behavioral economist from Israel. Much of his work is closely related to Tversky and Kanneman’s work, although he has taken it in many new directions, but it is usually related to consumer behavior in some way.
*** He describes how money is often the most expensive way to motivate people. Instead, he suggests using social norms to do so. But he also warns the rules are different when you enter social norms into a relationship as opposed to market norms. The same rules that you use in relationships apply rather than the financial assessment of how much certain behaviors are worth. So if a business tries to develop social norms to increase productivity, they can’t all of a sudden introduce market norms without expecting a decrease in loyalty, etc.
*** He spends some time talking about the influence of arousal on decision making, or specifically how we believe we will make a particular decision when in cold, rational states than we end up making when we are highly aroused. His specific studies have examined sexual decision making and how people are more than twice as likely to rate their likelihood of engaging in various sexual behaviors as high when they are aroused vs. when they are not. This is highly relevant to things like abstinence training programs and even safe sex programs. The best prevention is to prevent the high level of arousal or the opportunity in the first place, but if arousal does occur to make sure people are trained to have what they need available “just in case”. The same principles apply for the faulty predictions of how we would behave under any emotional or motivational state, such as hunger. Another example is pregnant women not wanting to use pain medication during birth. They make the decision beforehand, but often change their mind once the pain begins because they cannot predict how they will feel during that state. One technique he offers to test this is to have a woman hold her hand into a bucket of ice for two minutes while practicing her breathing. If she is able to handle it without trouble she might be able to handle childbirth more reasonably.
*** His next section concerns procrastination and various methods of dealing with it. He divided his class into three sections, one where they got to pick their own deadlines, but once they were chosen they were firm; one where the deadlines were firmly established by the instructor; and one where there were no deadlines, they just had to submit their papers by the end of the quarter. The forced deadlines condition did best, the ones who chose their own deadlines did second, and the no deadlines condition performed the worst on the paper. He suggests the development of more external controls that we can select to prevent us from having to face temptation (to procrastinate, to spend, etc.) in the first place. By setting up our own deadlines/goals that are set in stone, we can head off our self regulation tendencies and just follow the designated structure.
*** His next section relates to when and why people cheat. He found that for many tasks where people are unsupervised, they fail to cheat as much as they possibly can, even when no one will find out, but they almost always cheat a little. This is because in small circumstances like that people don’t really consider what they are doing as wrong. In other words, small infractions don’t typically bring to mind codes of conduct we have available for moral decisions. Instead they just sweep the transgression under the rug without thinking about it. But if people were reminded of a moral code (like the 10 commandments) they wouldn’t cheat at all. The key is to make morality accessible so that the decision will be framed in moral terms. He also suggests oaths and guilds might make ethics in business more likely because people would frame their decisions more on the code of conduct of their organization/profession instead of not really thinking about it.
*** He continues on with his cheating work, but extends it to the difference between cash and non-cash currencies. When people are playing a game for cash they are much more likely to tell the truth about how much they earned (because the cash is a concrete reminder of how important the decision is) compared to when they play the game for tokens or credit of some kind. The problem is that people think there decisions are always made based on the same moral code regardless of the form of money they use. But in reality, the more concrete and meaningful a currency is, the more likely we are to frame our decisions in terms of market norms, and moral judgment. Some of the examples for non-monetary transactions are wardrobing or returning clothes after wearing them once; expense reports; taxes; insurance overestimations; or stealing anything that isn’t directly related to cash in general.
*** He ends his book with a website for his book (www.predictablyirrational.com), and mentions that you can sign up for one of his studies from the site.
What an interesting book. It complemented my last reading ~ Thinking Fast and Slow by Kahneman ~ in some ways. The examples in the book suggests that `The Neo Cortex` is such a funny dude that tricks us into thinking that we are making logical decision, that we are rational beings. In the meanwhile the other machinery that actually makes and executes the decision is pulling our strings. As stated in the book, we are a true Jeckll and Hyde dilemma. Very funny and the joke is on us.
This is a wonderfully interesting and amusing book. Every time I had a few spare minutes, I would leap back into it with gusto. Some of the things I read I had already seen elsewhere - but much was new to me. The author is described as a behavioural economist.....and I think this book would interest anyone who is interested in psychology.
This book is tops. There are enough reviews here singing its praises already. I shall simply end with some notes for my own record
, and links to some more of Ariely's work (the TED talks are fantastic!)
Everything is relative:
We don't know what we want, unless we see it in context. eg we don't know what sort of racing bike we want until we see a champion cyclist ratcheting gears on a particular model in the Tour de France. We don't even know what we want to do with our lives until we find a friend or relative who is doing what we think we should be doing.
This is difficult, and often unpleasant. It is much easier just to follow our intuition (which can often be based on the silliest things.)
The Middle Option (Everything is relative...)
Given three options, we usually choose the middle one. eg if an electrical shop wants to sell a certain television set it will put it in the window with a more expensive and less expensive television set on either side. We will make comparisons....and go for the middle option.
Envy and one-upmanship
These are often big motivating forces in people's lives.
Take the example of escalating salaries and perks given to senior executives in US companies.
1976: The average CEO was paid 36 times as much as the average worker
1993: The average CEO was paid 131 times as much as the average worker
At this point the Federal securities regulators stepped in. In an effort to stop this ridiculous escalating of executives' salaries, they forced companies to reveal pay and perks given to their top executives. They thought this would deter the greed.
Instead, after the legislation about transparency was put into effect, CEOs were paid 369 times as much as the average worker! When CEOs saw how much other CEOs were being paid, they felt envious, and demanded equity - and their salaries and perks crept up and up!
How to combat the envy drive
Make a conscious decision to try and lead a basic/simple life. The alternative is 'The more you have the more you want,' Don't be a greedy CEO. Be sane.
Stay away from social circles where spending and one-upmanship are a part of how they do things.
When buying a house, or other major investments - just don't look at products outside your budget.
There is no merit in increasing the luxury in our lives. We just get used to more and more expensive things, and saving becomes more and more difficult.
Realise that the price of many products is arbitrary
Usually a product's price is affected by the initial price at which it was sold. This then become the accepted price for that product. (My example) If people go to an art gallery and pay £1.00 for a beautiful pebble they will think this is a fair price for future pebbles they buy. If people pay £10.00 for that first beautiful pebble - they will regard this as the norm.
We reinforce our own behaviour
If we like something once, we will do it again, and this builds up into a self-affirming belief of 'liking' something. Each time we do something we initially liked, we increase the degree we decide we like it. Sometimes we need to step back and see how much this is still true.
*How did this habit begin?
*How much pleasure will |I really be getting from it?
*Would I be better off spending the time/money elsewhere.
We get seduced by glamour and the appearance of sophistication
This is why Starbucks succeeded over Dunkin'Donuts.
We do what is expected of us
The author read some poetry to his students. He then asked half if they would pay $2.00 to hear them again. They agreed.
He asked the other half if they would listen to them again if he paid them $2.00. Again they agreed.
The lure of the free offer
The author argues that the attractiveness of two for the price of one (ie one free) is hugely more powerful than just offering a single product more cheaply.
He cites other examples as well. We love things that are free, and are inevitably seduced by offers of things for free.
This is why Coca Cola have a cola product called Zero. Zero calories. Zero = free. Free from calories! Free, free, free!
Market exchanges versus social exchanges
We live in two worlds, one governed by market exchanges, and the other governed by social exchanges.
Market exchanges are business...sharp-edged, prices, rates, interest, cost and benefits.
Social exchanges are friendly...warm and fuzzy.
People are happy to do things for free, eg give their time to charities, but you can't taint this by mixing in market exchanges with what is basically a social exchange.
eg lawyers were asked if they would help poor elderly clients for £30.00 an hour. They refused.
Then another group were asked to do the same thing again for free, and they all accepted.
eg A yoga master taught his students for free in his home town. One day they said they loved his classes and would be happy to make a financial contribution towards the class. He replied "If I charged you for this class you could not afford me." Again - they were transgressing the market exchange/social exchange divide.
A lot of businesses nowadays try and introduce the warmth of social exchanges into their work practices. They want the work environment to be more friendly and cosy. But when you have practices like zero hour contracts, or sending employees work-related emails outside working hours, a cloak of chummy friendliness wears a bit thin.
It's the same with relations between businesses. Friendliness is good for business. But then one business pays its bill late and gets charged an extra fee for delayed payment. This again puts a strain on the chumminess. Today many companies try and market themselves as social companions, but this makes it hard for them when they have to contravene social norms and become businesslike.
Don't make decisions when you are emotionally aroused
The author and his colleagues did computer experiments with students who were sexually aroused, and their decision-making abilities went haywire. The author feels that this is the same for other emotional states. eg It is not good to make decisions when you are angry, hungry, fearful or in pain. It is far better to walk away and calm down, and yes, don't send that email....
It is better to avoid provocative situations than to try and walk away from them
Rates of saving in different countries
America - people spend more than they earn
Europe - 20%
Japan - 25%
Reasons for American rates of spending.
* An explosion in consumer credit. The average American family has six credit cards.
Why have we got such little self control
Immediate gratification versus long term goals.
The best way to curtail our urge for immediate gratification....
*Set ourselves deadlines
*Start a blog discussing our efforts to keep to our goals.
We value what we own hugely more than other people value it
The author did an amazing test re basketball game tickets at Duke University, which has a small stadium.
Students had camped in a line to buy tickets for several days, for a special game. Not only did they camp, but they had to report regularly to the ticket office, or they were sent to the back of the queue.
Afterwards the author did a test...
The average price people who managed to get the tickets were prepared to sell them for...$2,400.
The average price those who didn't get tickets were prepared to buy them for $170.
(And no, that is not a typo)
Because we love what we possess, we over-value it. We also exaggerate to ourselves the sense of loss we would have if we lost one of our possessions.
We expect other people to value our possessions as much as we do - but they don't.
This is why 'trial' promotions are so successful. After people have something on trial for a couple of weeks they want to keep it. Emotionally it has become one of their possessions.
Ownership doesn't only apply to material things, it also applies to points of view
Once we take ownership of an idea we value it more than we should. Frequently we can't let go of it because we can't bear the thought of its loss. What are we left with? An ideology that is rigid and unyielding.
(Me - Re the above....I couldn't relate to this concept at all!)
Downgrading anything is experienced as a loss
eg moving to a smaller house.
The challenge of making choices
In today's world we have far too many options. It is important to try and prioritize - if necessary just choose any particular options, rather than having too much on our plate and finding life stressful as a result. We have to commit ourselves to just a few paths, interests, courses in our lives.
Human nature wants to keep all options open (the author has done copious experiments to prove this), but this is bad. We must simplify.
Another downside of following too many things in your life, is that the important things get overlooked, or don't get enough attention.
Placebos in medicine
Expensive aspirin and paracetamol is more effective than cheap aspirin and paracetamol.
Several operations have been proved to be pure placebos. Patients given fake operations have recovered just as well as those given genuine operations (needless to say this only applies to certain operations!)
The author conducted various experiments - eg giving gym goers a stimulant tonic which said it would "improve performance". When told it was more expensive, the gym goers performed better and said it was more effective. When told it was cheaper - the gym goers found it less effective.
The good news about our weakness for 'expensive' pills and tonics.... Once we are told that the cheaper options is exactly the same as the more expensive one - we get equal help from both products.
Most of us are prone to being a little bit dishonest. The author cites several experiments to show this. But most of us have a cut off point re dishonesty. We might nick a pencil from work, or cheat a bit on expenses, but we wouldn't take money from a colleague's purse.
The author argues at some length in the book for the importance of honesty in creating a safe and trustworthy society. He talks about the dishonesty of major institutions, as well as individual dishonesty.
He talks about the fact that a lot of lawyers now complain that their profession has become unethical, and he feels that doctors, bankers and other professional are equally affected. He feels this can be blamed on a movement in the 1960s to deregulate the professions.
The author feel passionately that good ethics and honesty are an important and valuable asset to society, and they need to be encouraged and protected as much as possible.
Dan Ariely's website. (Letters to him from the public and his responses.... He seems to be a sort of agony aunt for The Wall Street Journal.)
Dan Ariely's TED talks...
Are we in control of our decisions?
What makes us feel good about our work?
Our buggy moral code
Beware Conflicts of interest
How equal do we want the world to be? You'd be surprised...
Predictably Irrational: Basic human motivations
A great interview with Dan for Valentine's Day 2015, about dating & relationships.
A series of interviews/podcasts done by Dan Ariely for Duke University, under the umbrella title "Arming the Donkeys"