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Books, Economics

Dan Ariely’s “Predictably Irrational”

I just finished Dan Ariely’s interesting book Predictably Irrational. Ariely is a professor of behavioral economics. The book is about certain, often unconscious, factors influence our decision-making, even if they are illogical. Here’s a summary:

Chapter 1

We buy and make decisions in a context of comparison.

Chapter 2

In our act of situating decisions in context, we apply arbitrary coherence to our choices. One choice becomes the anchor price (the price we consider paying for something) by which we compare other options. (See the TedTalk below.)

Chapter 3

We choose something that is “free” even if it is not the most economical deal because we believe that we have nothing to lose by taking the “free.”

Chapter 4

We differentiate in our behavior between social norms and market norms. For example, when we pay for something (market norm), we legitimize our consumption (even if it is extreme or immoral); when we receive something freely, we self-moderate our consumption (because the good is seen as social).

Chapter 5

By attaching monetary value to work, we detach work from social norms.

Chapter 6

When the primal part of our brain that is related to survival (fight-flight, hunger, thirst, sex, etc.) is aroused, we make decisions that we otherwise think we should not make.

Chapter 7

Even though it is not in our best interest, we predictably procrastinate and struggle with self-control (primarily because there is no immediate gratification attached to undesired tasks).

Chapter 8

We estimate the value of our own possessions to be much higher than what others estimate them to be.

Chapter 9

Choices drive our curiosity, and curiosity, generally, has negative repercussions on decision-making.

Chapter 10

We perceive reality through what we expect or desire reality to portray.

Chapter 11

Paying a higher price makes us feel like we are getting a higher quality product, even when the product is a placebo.

Chapter 12

Trust – a crucial component of the economy and society – is easily degraded (causing a reflex of mistrust towards marketers and politicians).

Chapter 13

We tend to lie/cheat a little – even if it does long-term harm to ourselves (like diminishing public trust) – except when we are conscious of moral commitments (like the Ten Commandments) at the time of the temptation. (I would like to see Ariely’s experiment in this chapter using W.W.J.D? My hunch is that it would be less effective than the 10 Commandments because it is vague (W.W.J.D? is determined by the questioner).

Chapter 14

We rationalize dishonesty, but less so when we deal personally in cash transactions.

Chapter 15

Our economic behavior is sometimes determined not by acquiring that which pleases us but rather by that which makes us look good or unique in the eyes of others.

I’ll let you read the book to better understand how these behaviors influence our irrational decision-making.

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About Fragments & Reflections

David Chronic

Discussion

2 thoughts on “Dan Ariely’s “Predictably Irrational”

  1. sounds like a good book to read! reality check!

    blessings on your New Year – may the Lord direct your steps into His great Love more and more.

    Posted by mary jane tynan | January 2, 2012, 5:58 pm

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