Kwame's Reviews > Predictably Irrational: The Hidden Forces That Shape Our Decisions

Predictably Irrational by Dan Ariely
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M 50x66
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Mar 01, 09

really liked it
Read in February, 2009

This interesting book adds to the infusion of psychology into the arena of economics aka Behavioral Economics. Through a series of experiments, the author confirms the idea that the assumptions of perfect rationality that standard economics texts make do not always stand. Unlike many who argue that these findings overturn the classical view, I am not at all sure that that assumption is correct because the author still confirms that despite the inability of most people to make quick comparisons among choices, people still prefer more to less.

No doubt Daniel Ariely has designed and carried out a large number of experiments on students at MIT and other colleges, I am unsurprised though that he finds that students are wont to cheat when they calculate that they are more likely to get away with it. To my mind, that is perfectly rational behaviour in any competitive environment with no rules or lax enforcement. Does one need to make reference to Maddoff et all to agree to find other examples?

In the many anecdotes in the book, one of the memorable ones is the tacit resistance by bank executives to improve the design of credit card systems with a view to reduction of debt for clients unable to exert control from impulsive buying. While I see the fear that comes from foregoing late payment fees and interest income, I would expect the bank executives to have agreed to the testing of the system and determine whether it really reduced their profitability.
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