Predictably Irrational: The Hidden Forces That Shape Our Decisions

by Dan Ariely

Understanding irrationality is important for our everyday actions and decisions, and for understanding how we design our environment and the choices it presents to us. My further observation is that we are not only irrational, but predictably irrational—that our irrationality happens the same way, again and again. Whether we are acting as consumers, businesspeople, or policy makers, understanding how we are predictably irrational provides a starting point for improving our decision making and changing the way we live for the better. This leads me to the real “rub” (as Shakespeare might have called it) between conventional economics and behavioral economics. In conventional economics, the assumption that we are all rational implies that, in everyday life, we compute the value of all the options we face and then follow the best possible path of action. What if we make a mistake and do something irrational? Here, too, traditional economics has an answer: “market forces” will sweep down on us and swiftly set us back on the path of righteousness and rationality. On the basis of these assumptions, in fact, generations of economists since Adam Smith have been able to develop far-reaching conclusions about everything from taxation and health-care policies to the pricing of goods and services.

Let me start with a fundamental observation: most people don’t know what they want unless they see it in context. We don’t know what kind of racing bike we want—until we see a champ in the Tour de France ratcheting the gears on a particular model. We don’t know what kind of speaker system we like—until we hear a set of speakers that sounds better than the previous one. We don’t even know what we want to do with our lives—until we find a relative or a friend who is doing just what we think we should be doing. Everything is relative, and that’s the point.

RELATIVITY HELPS US make decisions in life. But it can also make us downright miserable. Why? Because jealousy and envy spring from comparing our lot in life with that of others.

It has been shown repeatedly that the link between amount of salary and happiness is not as strong as one would expect it to be (in fact, it is rather weak). Studies even find that countries with the “happiest” people are not among those with the highest personal income. Yet we keep pushing toward a higher salary. Much of that can be blamed on sheer envy.

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

What did we show? That our first decisions resonate over a long sequence of decisions. First impressions are important, whether they involve remembering that our first DVD player cost much more than such players cost today (and realizing that, in comparison, the current prices are a steal) or remembering that gas was once a dollar a gallon, which makes every trip to the gas station a painful experience. In all these cases the random, and not so random, anchors that we encountered along the way and were swayed by remain with us long after the initial decision itself.

Could it be that the lives we have so carefully crafted are largely just a product of arbitrary coherence? Could it be that we made arbitrary decisions at some point in the past (like the goslings that adopted Lorenz as their parent) and have built our lives on them ever since, assuming that the original decisions were wise? Is that how we chose our careers, our spouses, the clothes we wear, and the way we style our hair? Were they smart decisions in the first place? Or were they partially random first imprints that have run wild?

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

Taking the systematic and calculated approach to solving this problem did not yield the “correct” answer, so I went back and fudged around with my responses, letting the computerized method rationalize my choice for me. This way, I ended up with a decision that made me happy, and at the same time, it was a decision that I could easily explain to myself. With a neat and programmed computerized process, it was now obvious why the small convertible was, in fact, the right choice for me.

sometimes we want our decisions to have a rational veneer when, in fact, they stem from a gut feeling—what we crave deep down. I suspect that in our attempts to make sure that we end up with decisions that seem well-reasoned and thoughtful, we commonly undergo a lot of unnecessary mental gymnastics and justifications, particularly when the choices are large and significant. Sometimes these rationalizations are complex and time-consuming, and sometimes we have the benefit of a software program to help us with more efficient rationalization.

The critical issue arises when FREE! becomes a struggle between a free item and another item—a struggle in which the presence of FREE! leads us to make a bad decision.

WHAT IS IT about FREE! that’s so enticing? Why do we have an irrational urge to jump for a FREE! item, even when it’s not what we really want? I believe the answer is this. 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.

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

Because 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.

Overall, 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.

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.

If you’re a company, my advice is to remember that you can’t have it both ways. You can’t treat your customers like family one moment and then treat them impersonally—or, even worse, as a nuisance or a competitor—a moment later when this becomes more convenient or profitable. This is not how social relationships work. If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances.

Although some companies have been successful in creating social norms with their workers, the current obsession with short-term profits, outsourcing, and draconian cost cutting threatens to undermine it all. In a social exchange, after all, people believe that if something goes awry the other party will be there for them, to protect and help them. These beliefs are not spelled out in a contract, but they are general obligations to provide care and help in times of need. Again, companies cannot have it both ways.

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.

My feeling so far is that standardized testing and performance-based salaries are likely to push education from social norms to market norms. The United States already spends more money per student than any other Western society. Would it be wise to add more money? The same consideration applies to testing: we are already testing very frequently, and more testing is unlikely to improve the quality of education.

Instead of focusing the attention of the teachers, parents, and kids on test scores, salaries, and competition, it might be better to instill in all of us a sense of purpose, mission, and pride in education. To do this we certainly can’t take the path of market norms. The Beatles proclaimed some time ago that you “Can’t Buy Me Love” and this also applies to the love of learning—you can’t buy it; and if you try, you might chase it away.

We should also work hard on making education a goal in itself, and stop confusing the number of hours students spend in school with the quality of the education they get. Kids can get excited about many things (baseball, for example), and it is our challenge as a society to make them want to know as much about Nobel laureates as they now know about baseball players. I am not suggesting that igniting a social passion for education is simple; but if we succeed in doing so, the value could be immense.

The point is that while gifts are financially inefficient, they are an important social lubricant. They help us make friends and create long-term relationships that can sustain us through the ups and downs of life. Sometimes, it turns out, a waste of money can be worth a lot.

But if Susan offers her cookies for free, I am willing to bet that you will think about social justice, the consequences of appearing greedy, and the welfare of your coworkers. Once money is introduced into the exchange, you stop thinking about what’s socially right and wrong, and you simply want to maximize your cookie intake.

In economic exchanges, we are perfectly selfish and unfair. And we think that following our wallets is the right thing to do.

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, the old maxim “Time is money”—or, in our case, “Effort is money”—is not exactly correct. Perhaps a more accurate reframing of our findings would be that effort is somewhere on the spectrum between market and social norms.

I suspect that for social norms to operate, people cannot be at their most emotionally piqued state. When you’re focused, mind and body, on one highly emotional objective—grabbing that wedding dress—it’s hard to factor in others’ well-being. As we will see in the next chapter, when emotions run high, social norms inevitably get trampled like so many Vera Wang veils.

In every case, our bright young participants answered the questions very differently when they were aroused from when they were in a “cold” state.

Across the board, they revealed in their unaroused state that they themselves did not know what they were like once aroused. Prevention, protection, conservatism, and morality disappeared completely from the radar screen. They were simply unable to predict the degree to which passion would change them.*

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.

When he is gripped by passion, his emotions may blur the boundary between what is right and what is wrong. In fact, he doesn’t have a clue to how consistently wild he really is, for when he is in one state and tries to predict his behavior in another state, he gets it wrong.

But as our study shows, in the heat of passion, we are all in danger of switching from “Just say no” to “Yes!” in a heartbeat; and if no condom is available, we are likely to say yes, regardless of the dangers.

unless we understand how we might react in an emotional state, we will not be able to predict this transformation. For teenagers, this problem is most likely exacerbated, and thus 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.

A better strategy, for those who want to guarantee that teenagers avoid sex, is to teach teenagers that they must walk away from the fire of passion before they are close enough to be drawn in. Accepting this advice might not be easy, but our results suggest that it is easier for them to fight temptation before it arises than after it has started to lure them in. In other words, avoiding temptation altogether is easier than overcoming it.

“Just say no” assumes we can turn off passion at will, at any point, whereas our study shows this assumption to be false.

If we put aside the debate on the pros and cons of teenage sex, what is clear is that if we want to help teenagers avoid sex, sexually transmitted diseases, and unwanted pregnancies, we have two strategies. Either we can teach them how to say no before any temptation takes hold, and before a situation becomes impossible to resist; or alternatively, we can get them prepared to deal with the consequences of saying yes in the heat of passion (by carrying a condom, for example). One thing is sure: if we don’t teach our young people how to deal with sex when they are half out of their minds, we are not only fooling them; we’re fooling ourselves as well. Whatever lessons we teach them, we need to help them understand that they will react differently when they are calm and cool from when their hormones are raging at fever pitch (and of course the same also applies to our own behavior).

But to make informed decisions we need to somehow experience and understand the emotional state we will be in at the other side of the experience. Learning how to bridge this gap is essential to making some of the important decisions of our lives.

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

people may set deadlines for themselves, but not necessarily the deadlines that are best for getting the best performance.

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.

Sometimes we strongly support regulations that restrain our self-destructive behaviors, and at other times we have equally strong feelings about our personal freedom. Either way, it’s always a trade-off.

I began to imagine a credit card of a different kind—a self-control credit card that would let people restrict their own spending behavior. The users could decide in advance how much money they wanted to spend in each category, in every store, and in every time frame.

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.

I suspect that over the next few decades, real improvements in life expectancy and quality are less likely to be driven by medical technology than by improved decision making.

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.

OUR 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.

I don’t think we can become more accurate and objective in the way we think about our children and houses, but maybe we can realize that we have such biases and listen more carefully to the advice and feedback we get from others.