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.

I think most pricing is based on this. Real estate is the craziest one, where large amounts are driven entirely by comparable recent sales.

given three choices, most people will take the middle choice

Totally true in pricing and negotiating.

Flustered by poor sales, the manufacturer of the bread machine brought in a marketing research firm, which suggested a fix: introduce an additional model of the bread maker, one that was not only larger but priced about 50 percent higher than the initial machine. Now sales began to rise (along with many loaves of bread), though it was not the large bread maker that was being sold.

As I often buy the top models of things, I wonder how many times I didn't need to have and bought the equivalent of this.

Instead of offering FREE! shipping on orders over a certain amount, the French division priced the shipping for those orders at one franc. Just one franc—about 20 cents. This doesn’t seem very different from FREE! but it was. In fact, when Amazon changed the promotion in France to include free shipping, France joined all the other countries in a dramatic sales increase.

we live simultaneously in two different worlds—one where social norms prevail, and the other where market norms make the rules.

Because once market norms enter our considerations, the social norms depart.

The conclusion: no one is offended by a small gift, because even small gifts keep us in the social exchange world and away from market norms.

when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish.

In fact, he confided, his group had an unspoken agreement with the drug couriers: the feds wouldn’t fire if the drug dealers didn’t fire. Perhaps that’s why we rarely (if ever) hear about gun battles on the edges of America’s “war on drugs.”

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.

The answer, I believe, is not to re-create society as Burning Man, but to remember that social norms can play a far greater role in society than we have been giving them credit for.

when price is not a part of the exchange, we become less selfish maximizers and start caring more about the welfare of others.

every one of us, regardless of how “good” we are, underpredicts the effect of passion on our behavior. In every case, the participants in our experiment got it wrong. 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.

Why not build into cars precautionary devices to foil teenagers’ behavior? Such cars might be equipped with a modified OnStar system that the teenager and the parents configure in a cold state. If a car exceeds 65 miles per hour on the highway, or more than 40 miles per hour in a residential zone, for example, there will be consequences.

I like this. Can I have it?

Thus, under the variable schedule of reinforcement, the arrival of the reward is unpredictable. On the face of it, one might expect that the fixed schedules of reinforcement would be more motivating and rewarding because the rat (or the used-car dealer) can learn to predict the outcome of his work. Instead, Skinner found that the variable schedules were actually more motivating.

e-mail is very much like gambling. Most of it is junk and the equivalent to pulling the lever of a slot machine and losing, but every so often we receive a message that we really want.

In order to overcome many types of human fallibility, I believe it’s useful to look for tricks that match immediate, powerful, and positive reinforcements with the not-so-pleasant steps we have to take toward our long-term objectives. For me, beginning a movie—before I felt any side effects—helped me to sustain the unpleasantness of the treatment.

OWNERSHIP IS NOT limited to material things. It can also apply to points of view. Once we take ownership of an idea—whether it’s about politics or sports—what do we do? We love it perhaps more than we should. We prize it more than it is worth. And most frequently, we have trouble letting go of it because we can’t stand the idea of its loss. What are we left with then? An ideology—rigid and unyielding.

But the bigger doors (or those that seem bigger) are harder to close. Doors that just might lead to a new career or to a better job might be hard to close. Doors that are tied to our dreams are also hard to close. So are relationships with certain people—even if they seem to be going nowhere. We have an irrational compulsion to keep doors open.

ALTHOUGH CHOOSING BETWEEN two very similar options should be simple, in fact it is not.

When the coffee ambience looked upscale, in other words, the coffee tasted upscale as well. WHEN WE BELIEVE beforehand that something will be good, therefore, it generally will be good—and when we think it will be bad, it will bad.

The same approach should be used to settle arguments: The perspective of each side is presented without the affiliation—the facts are revealed, but not which party took which actions. This type of “blind” condition might help us better recognize the truth.

When people order food and drinks, they seem to have two goals: to order what they will enjoy most and to portray themselves in a positive light in the eyes of their friends. The problem is that once they order, say, the food, they may be stuck with a dish they don’t like—a situation they often regret.

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

IF I WERE to distill one main lesson from the research described in this book, it is that we are pawns in a game whose forces we largely fail to comprehend. We usually think of ourselves as sitting in the driver’s seat, with ultimate control over the decisions we make and the direction our life takes; but, alas, this perception has more to do with our desires—with how we want to view ourselves—than with reality.