Predictably Irrational: The Hidden Forces That Shape Our Decisions

by Dan Ariely

humans rarely choose things in absolute terms. We don't have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.

most people don't know what they want unless they see it in context.

Thinking is difficult and sometimes unpleasant.

we not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable—and avoid comparing things that cannot be compared easily.

RELATIVITY HELPS US make decisions in life.

make the circles of comparison in his life smaller, not larger.

That's a lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity.

“Tom had discovered a great law of human action, namely, that in order to make a man covet a thing, it is only necessary to make the thing difficult to attain.”

SO WE ANCHOR ourselves to initial prices.

What did we show? That our first decisions resonate over a long sequence of decisions.

Starbucks did everything in its power, in other words, to make the experience feel different—so different that we would not use the prices at Dunkin' Donuts as an anchor, but instead would be open to the new anchor that Starbucks was preparing for us. And that, to a great extent, is how Starbucks succeeded.

Could it be that the lives we have so carefully crafted are largely just a product of arbitrary coherence?

With everything you do, in fact, you should train yourself to question your repeated behaviors.

When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention.

Socrates said that the unexamined life is not worth living.

In the framework of arbitrary coherence, the relationships we see in the marketplace between demand and supply (for example, buying more yogurt when it is discounted) are based not on preferences but on memory.

In other words, the sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions—not at all a reflection of our true preferences or our level of demand.

mutual benefit of trading rests on the assumption that all the players in the market know the value of what they have and the value of the things they are considering getting from the trade.

a free market based on supply, demand, and no friction would be the ideal if we were truly rational.

WHEN CHOOSING BETWEEN two products, then, we often overreact to the free one.

The difference between two cents and one cent is small. But the difference between one cent and zero is huge!

price of zero plays a unique role in our decisions.

He should also have remembered the immortal words of Woody Allen: “The most expensive sex is free sex.”

Gifts are also effective for sofas, and offering people a gift, even a small one, is sufficient to get them to help; but mention what the gift cost you, and you will see the back of them faster than you can say market norms.

SO WE LIVE in two worlds: one characterized by social exchanges and the other characterized by market exchanges.

Creativity counts more than industrial machines. The partition between work and leisure has likewise blurred. The people who run the workplace want us to think about work while we're driving home and while we're in the shower. They've given us laptops, cell phones, and BlackBerries to bridge the gap between the workplace and home.

There are social rewards that strongly motivate behavior—and one of the least used in corporate life is the encouragement of social rewards and reputation.

If corporations started thinking in terms of social norms, they would realize that these norms build loyalty and—more important—make people want to extend themselves to the degree that corporations need today: to be flexible, concerned, and willing to pitch in. That's what a social relationship delivers.

cash will take you only so far—social norms are the forces that can make a difference in the long run.

MONEY, AS IT turns out, is very often the most expensive way to motivate people. Social norms are not only cheaper, but often more effective as well.

life with fewer market norms and more social norms would be more satisfying, creative, fulfilling, and fun.

Even the most brilliant and rational person, in the heat of passion, seems to be absolutely and completely divorced from the person he thought he was.

Giving up on our long-term goals for immediate gratification, my friends, is procrastination.

Interestingly, these results suggest that although almost everyone has problems with procrastination, those who recognize and admit their weakness are in a better position to utilize available tools for precommitment and by doing so, help themselves overcome it.

“Every man [and woman] … lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.”

The second quirk is that we focus on what we may lose, rather than what we may gain.

Our aversion to loss is a strong emotion,

THERE IS NO known cure for the ills of ownership. As Adam Smith said, it is woven into our lives. But being aware of it might help.

THE OTHER SIDE of this tragedy develops when we fail to realize that some things really are disappearing doors, and need our immediate attention.

discounts is largely an unconscious reaction to lower prices.

people cheat when they have a chance to do so, but they don't cheat as much as they could.

We can be dishonest without thinking of ourselves as dishonest.

people are sometimes willing to sacrifice the pleasure they get from a particular consumption experience in order to project a certain image to others.

In essence, people, particularly those with a high need for uniqueness, may sacrifice personal utility in order to gain reputational utility.

we are pawns in a game whose forces we largely fail to comprehend.

By the time we comprehend and digest information, it is not necessarily a true reflection of reality. Instead, it is our representation of reality, and this is the input we base our decisions on.