Predictably Irrational: The Hidden Forces That Shape Our Decisions

by Dan Ariely

My further observation is that 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.

given three choices, most people will take the middle choice

even though people generally won’t buy the most expensive dish on the menu, they will order the second most expensive dish.

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.

This is the problem of relativity—we look at our decisions in a relative way and compare them locally to the available alternative.

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.

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

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

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.

Yes, a free market based on supply, demand, and no friction would be the ideal if we were truly rational. Yet when we are not rational but irrational, policies should take this important factor into account.

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.

They reacted to the explicitly priced gift in exactly the way they reacted to cash, and the gift no longer invoked social norms—by the mention of its cost, the gift had passed into the realm of market norms.

Thinking about money, then, made the participants in the “salary” group more self-reliant and less willing to ask for help.

after thinking about money these participants were less willing to help an experimenter enter data, less likely to assist another participant who seemed confused, and less likely to help a “stranger”

the participants in the “salary” group showed many of the characteristics of the market: they were more selfish and self-reliant; they wanted to spend more time alone; they were more likely to select tasks that required individual input rather than teamwork; and when they were deciding where they wanted to sit, they chose seats farther away from whomever they were told to work with. Indeed, just thinking about money makes us behave as most economists believe we behave—and less like the social animals we are in our daily lives.

studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Uri and Aldo concluded that the fine didn’t work well, and in fact it had long-term negative effects. Why? Before the fine was introduced, the teachers and parents had a social contract, with social norms about being late.

fine was imposed, the day care center had inadvertently replaced the social norms with market norms. Now that the parents were paying for their tardiness, they interpreted the situation in terms of 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 the case of Linux and other collaborative projects,

if you had to hire people of the same caliber they would cost you an arm and a leg.

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.

Are workers thinking in terms of money, rather than the social values of loyalty and trust?

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.

I’m not sure I could easily survive in Burning Man for all 52 weeks of the year. But this experience has convinced me that life with fewer market norms and more social norms would be more satisfying, creative, fulfilling, and fun.

But in the same way that market norms may undermine social norms, it may be that market norms also erode the pride and meaning people get from the workplace (for example, when we pay schoolteachers according to their students’ performance on standardized tests).

Explicitly stating the financial value of these benefits can also diminish enjoyment, motivation, and loyalty to the workplace—negatively affecting both the employer-employee relationship and our own pride and happiness at work.

The basic lesson, then, is that when we offer people a financial payment in a situation that is governed by social norms, the added payment could actually reduce their motivation to engage and help out.

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

As it turns out, we are caring social animals, but when the rules of the game involve money, this tendency is muted.

the theory of demand is a solid one—except when we’re dealing with the price of zero.

Not mentioning prices ushers in social norms, and with those social norms, we start caring more about others.

sex education should focus less on the physiology and biology of the reproductive system, and more on strategies to deal with the emotions that accompany sexual arousal.

We need to explore the two sides of ourselves; we need to understand the cold state and the hot state; we need to see how the gap between the hot and cold states benefits our lives, and where it leads us astray.

UR PROPENSITY TO overvalue what we own is a basic human bias, and it reflects a more general tendency to fall in love with, and be overly optimistic about, anything that has to do with ourselves.

HEN 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.

Journalist Gene Weingarten asked Joshua Bell, generally considered one of the best violinists in the world, to pose as a street performer and play some of the finest music ever composed* at a Metro station in Washington, D.C., during the morning rush hour. Would people notice that this guy was better than most buskers? Would they stop to listen? Would they throw a dollar or two his way? Would you?

The point is that we don’t really understand the role expectations play in the way we experience and evaluate art, literature, drama, architecture, food, wine—anything, really.

As it turns out, positive expectations allow us to enjoy things more and improve our perception of the world around us. The danger of expecting nothing is that, in the end, it might be all we’ll get.

In other words, the message on the bottle (and the quiz cover) as well as the price was arguably more powerful than the beverage inside.

the tragedy of the commons is about two competing human interests. On one hand, an individual should care about the sustainability of shared resources in the long term because everyone, including the individual, benefits from it. At the same time, in the short term, the individual benefits immediately from taking more than his or her fair share. (Social scientists refer to such betrayers of social contracts as “defectors.”)

it is why we get a warm feeling when we return a lost wallet to its owner, even if our identity is never revealed. Such acts stimulate the reward centers of our brain—the nucleus accumbens and the caudate nucleus—and make us content.

So we learned that people cheat when they have a chance to do so, but they don’t cheat as much as they could. Moreover, once they begin thinking about honesty—whether by recalling the Ten Commandments or by signing a simple statement—they stop cheating completely.

In other words, when we are removed from any benchmarks of ethical thought, we tend to stray into dishonesty. But if we are reminded of morality at the moment we are tempted, then we are much more likely to be honest.

once professional ethics (the social norms) have declined, getting them back won’t be easy.

when the medium of exchange is nonmonetary, our ability to rationalize increases by leaps and bounds.