Predictably Irrational: The Hidden Forces That Shape Our Decisions

by Dan Ariely

we are not only irrational, but predictably irrational—that our irrationality happens the same way, again and again.

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.

we are always looking at the things around us in relation to others.

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.

We like to make decisions based on comparisons.

the more we have, the more we want. And the only cure is to break the cycle of relativity.

in order to make a man covet a thing, it is only necessary to make the thing difficult to attain.”

not only that goslings make initial decisions based on what’s available in their environment, but that they stick with a decision once it has been made. Lorenz called this natural phenomenon imprinting.

once the participants were willing to pay a certain price for one product, their willingness to pay for other items in the same product category was judged relative to that first price (the anchor).

our first decisions resonate over a long sequence of decisions. First impressions are important,

we call self-herding. This happens when we believe something is good (or bad) on the basis of our own previous behavior.

According to economic theory, we base these decisions on our fundamental values—our likes and dislikes.

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

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.

instead of consumers’ willingness to pay influencing market prices, the causality is somewhat reversed and it is market prices themselves that influence consumers’ willingness to pay.

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.

in the long term, it would have a much smaller influence on demand than would be assumed from just observing the short-term market reactions to price increases.

sometimes we want our decisions to have a rational veneer when, in fact, they stem from a gut feeling—what we crave deep down.

Most transactions have an upside and a downside, but when something is FREE! we forget the downside. FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is. Why? I think it’s because humans are intrinsically afraid of loss. The real allure of FREE! is tied to this fear. There’s no visible possibility of loss when we choose a FREE! item (it’s free).

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!

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

When social and market norms collide, trouble sets in.

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

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

SO WE LIVE in two worlds: one characterized by social exchanges and the other characterized by market exchanges. And we apply different norms to these two kinds of relationships. Moreover, introducing market norms into social exchanges, as we have seen, violates the social norms and hurts the relationships. Once this type of mistake has been committed, recovering a social relationship is difficult.

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.

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.

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.

while gifts are financially inefficient, they are an important social lubricant.

In economic exchanges, we are perfectly selfish and unfair.

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

effort is somewhere on the spectrum between market and social norms.

when public policy or environmental issues are at stake, our task is to figure out which of the two—social or market norms—will produce the most desirable outcome. In particular, policy makers should be careful not to add market norms that could undermine the social ones.

social norms get people to care less about their own selfish goals and pay more attention to the welfare of others,

for social norms to operate, people cannot be at their most emotionally piqued state.

our inability to understand ourselves in a different emotional state does not seem to improve with experience;

being aware that we are prone to making the wrong decisions when gripped by intense emotion may help us,

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

not everyone understands their tendency to procrastinate, and even those who do recognize their tendency to procrastinate may not understand their problem completely.

simplification is one mark of real genius.

the variable schedules were actually more motivating.

if a particular desired behavior results in an immediate negative outcome (punishment), this behavior will be very difficult to promote, even if the ultimate outcome (in my case, improved health) is highly desirable.

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.

America’s top killer isn’t cancer or heart disease, nor is it smoking or obesity. It’s our inability to make smart choices and overcome our own self-destructive behaviors.

The trick is to find the right behavioral antidote for each problem. By pairing something that we love with something that we dislike but that is good for us, we might be able to harness desire with outcome—and thus overcome some of the problems with self-control we face every day.

the more work you put into something, the more ownership you begin to feel for it.

the participants who were the highest bidders, for the longest periods of time, ended up with the strongest feelings of virtual ownership.