Book Review: Predictably Irrational

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Continuing in the vein of reading books about human psychology, I recently finished “Predictably Irrational: The Hidden Forces that Shape Our Decisions”, by Dan Ariely. Ariely is a Professor of of Psychology and Behavioral Economics at Duke. “Predictably Irrational” summarizes some of the results of academic studies that he and others have done to understand how humans end up making the decisions they do.

The book covers fourteen different areas of human decision-making. Ariely does an excellent job of describing each area, usually with an example or personal anecdote, and then describes the research and results. At the end of the book, Ariely has provided an extensive academic bibliography for readers who would like to see the original studies he references. (However, I never felt I couldn’t get, at least at a high level, the point Ariely was driving at. So it’s not really necessary to go read the original papers, unless one is interested in that sort of thing.)

A few chapters in the book stood out to me as being particularly insightful and useful:

  • The Truth About Relativity: Why Everything Is Relative – Even When It Shouldn’t Be

    This chapter describes our tendancy to make comparisons between things. It turns out that we do evaluate our options in some kind of decision-making vacuum - we almost always prefer to make some kind of comparison. This gives rise to a particularly effective sales tactic: offer X at one price, Y at another, and “X plus Y” at some price in-between. People will overwhelmingly choose to buy “X plus Y” at the middle price, even if they would never have purchased X or Y on its own! The reason? Because “X plus Y” has more “stuff” than X or Y individually, we think we are getting a better “deal”. (You find this kind of tactic with your cable provider - want Internet access? Pay for TV service and “save”!)

  • The Cost of Social Norms: Why We are Happy to Do Things, but Not When We Are Paid to Do Them

    This chapter was an eye-opener for me on the differences people attach to “social” and “market” norms. “Social norms” refers to the behaviors and attitudes which are enforced through social pressure and action, while “market norms” are those we enforce through market actions. For example, a social norm would be that if I ask you to help me move, you expect I will probably give you a gift, and offer to help you at some point in the future. A market norm would be if I paid you to mow my lawn - you know how much money you will receive, and I have the ability to tell you what I want you to do.

    Ariely studied how humans navigate social and market norms, and what happens when we try to go back and forth between the two. It turns out that once a social norm is mixed with a market one, (a) we respond to the market norm, not the social one, and (b) once the fact a market norm has been used, it’s very hard to go back to using only the social norm. This has practical consequences. If I want you to help me, I should probably use a social norm (such as gift-giving, or reciprocity). If I simply pay you, then the market norm takes over, and you will no longer help me “out of the goodness of your heart”. Now, while there are some times when the market norm is useful (contracting work, mowing the lawn, etc.), the social norms is more useful at building community and a sense of well-being between people.

    The difficulting with converting a market norm back into a social one has implications for business. With the rise of social media, businesses want people to identify with them through the lens of social norms. (Hence, businesses that tout their “corporate responsibility”.) Social norms are “sticky”, and if you’ve come to identify with a business, you’ll be inclined to stick with them. (Airline frequent flier programs are an example of this. Originally, service and social norms drove the program - “we’ll reward you for your loyalty, by giving you special perks”.) The problem, Ariely points out, is that companies don’t often make it easy for customers to benefit from the fact their relationship is based on social norms. If your check bounces, and your bank charges you a fee, then the relationship you had with them can be converted back into a market-driven one, and you are left thinking “Gosh! If they are OK with doing that to me, then I probably had better go find a different bank!”. This is probably why small businesses – which run themselves more at a “human scale” – will probably be better able to leverage social media, because the business can still work within social norms when dealing with customers, even if it costs the business a little in terms of market norms. (When’s the last time a “big corporation” really did something nice for you?)

  • Keeping Doors Open: Why Options Distract Us from Our Main Objective

    If you’re like me, you may often want to make sure you “have all the options available”. This chapter explored our propensity for keeping our options open. Interestingly, we will keep options open even if they do not provide us with a higher payoff than simply staying with our current choice. (Ariely constructed a clever game to show this behavior in a simple way.) What’s more, Ariely discovered that, even if the cost of getting an option back is zero, we will refuse to let it go! Keeping things simple, it seems, is hard for us.

  • The Effect of Expectations: Why The Mind Gets What it Expects

    How do our expectations about something affect our reaction and perception of it? It often seems we agree about problems, but disagree on causes. Two people, presented with the same set of facts, might arrive at radically different conclusions. How can this be?

    This chapter covered the question of how our expectations shape our reality. A bit less esoterically, what Ariely and others have discovered is that whether we think an event is going to be good or bad influences what we actually experience while participating in it.

    For example, Ariely asked MIT students to determine which of two beers they liked. The first was a generic beer, and the second, the same beer with some balsamic vinegar added. When students weren’t told which beer had the vinegar, they overwhelmingly said the vinegared beer was better. If, however, they were told in advance of tasting the beers, then they overwhelmingly rejected the vinegared beer. But, if they were told after the tasting, they indicated they liked the vinegared beer a lot. With the same beer, and three different expectations about its taste, the participatns gave radically different responses. That’s the power of expectation.

    A consequence of this line of reasoning is that, if can influence people’s expectations about something, we can actually influence their experience of it. For instance, Ariely recommends wine enthusiasts purchase the right-sized wine class for the particular kind of wine they are drinking. While there’s no scientific evidence that different glasses really enhance the flavor of the wine, by telling people the glasses do, you can actually increase their enjoyment of the wine. This might also be why “fake it until you make it” works - by changing our expectations, we change our reality.

Overall, if you are curious to know more about how we make decisions, and what science says about our predictable irrationality, then this would be a great book for you. Ariely conveys a lot of good information in a fun and engaging way, and you will finish the book a lot more knowledgeable about why you decide the way you do.


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