Predictably Irrational: The Hidden Forces That Shape Our Decisions

by Dan Ariely

In running back and forth among the things that might be important, we forget to spend enough time on what really is important. It’s a fool’s game, and one that we are remarkably adept at playing.

What we need is to consciously start closing some of our doors.

We have an irrational compulsion to keep doors open. It’s just the way we’re wired. But that doesn’t mean we shouldn’t try to close them.

What my friend (and also the donkey and Congress) failed to do when focusing on the similarities and minor differences between two things was to take into account the consequences of not deciding.

The moral, as you might expect, is that if you tell people up front that something might be distasteful, the odds are good that they will end up agreeing with you—not because their experience tells them so but because of their expectations.

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.

Finally, don’t underestimate the power of presentation. There’s a reason that learning to present food artfully on the plate is as important in culinary school as learning to grill and fry. Even when you buy take-out, try removing the Styrofoam packaging and placing the food on some nice dishes and garnishing it (especially if you have company); this can make all the difference.

EXPECTATIONS ALSO SHAPE stereotypes. A stereotype, after all, is a way of categorizing information, in the hope of predicting experiences. The brain cannot start from scratch at every new situation. It must build on what it has seen before. For that reason, stereotypes are not intrinsically malevolent. They provide shortcuts in our never-ending attempt to make sense of complicated surroundings.

Research on stereotypes shows not only that we react differently when we have a stereotype of a certain group of people, but also that stereotyped people themselves react differently when they are aware of the label that they are forced to wear (in psychological parlance, they are “primed” with this label).

Perhaps even more astoundingly, stereotypes can also affect the behavior of people who are not even part of a stereotyped group.

ALL THESE EXPERIMENTS teach us that expectations are more than the mere anticipation of a boost from a fizzy Coke. Expectations enable us to make sense of a conversation in a noisy room, despite the loss of a word here and there, and likewise, to be able to read text messages on our cell phones, despite the fact that some of the words are scrambled. And although expectations can make us look foolish from time to time, they are also very powerful and useful.

In all these conflicts, individuals from both sides can read similar history books and even have the same facts taught to them, yet it is very unusual to find individuals who would agree about who started the conflict, who is to blame, who should make the next concession, etc. In such matters, our investment in our beliefs is much stronger than any affiliation to sport teams, and so we hold on to these beliefs tenaciously. Thus the likelihood of agreement about “the facts” becomes smaller and smaller as personal investment in the problem grows. This is clearly disturbing.

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 stripping away our preconceptions and our previous knowledge is not possible, perhaps we can at least acknowledge that we are all biased. If we acknowledge that we are trapped within our perspective, which partially blinds us to the truth, we may be able to accept the idea that conflicts generally require a neutral third party—who has not been tainted with our expectations—to set down the rules and regulations.

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.

Thus familiarity may or may not breed contempt, but it definitely breeds expectations. Branding, packaging, and the reassurance of the caregiver can make us feel better.

ARE WE DOOMED, then, to get lower benefits every time we get a discount? If we rely on our irrational instincts, we will. If we see a discounted item, we will instinctively assume that its quality is less than that of a full-price item—and then in fact we will make it so.

In the United States very few surgical procedures are tested scientifically. For that reason, we don’t really know whether many operations really offer a cure, or whether, like many of their predecessors, they are effective merely because of their placebo effect.

Yikes…

I suspect that most people and companies miss or ignore the fact that trust is an important public resource and that losing it can have long-term negative consequences for everyone involved. It doesn’t take much to violate trust. Just a few bad players in the market can spoil it for everyone else.

Today, it’s easy for one individual to start selling “wonder pills” that promise to help you lose weight, keep or regrow your hair, enhance your sex life, and energize your workday. Unsuspecting people who buy such concoctions get all the benefits of placebos and, in the process, lose plenty of money. Meanwhile, the dishonest pill-purveyors gain substantially while further eroding the overall level of trust (at least for those who didn’t benefit from the placebo effect). This erosion not only makes it harder for the next wonder pill salesperson to peddle goods (which by itself is a good thing), but also makes it more difficult for us to believe those who truly deserve to be trusted.

As it turned out, the participants liked the stereo much more if they were told that the information they read came from an unbiased source such as Consumer Reports. They also said they would pay, on average, about $407 for the system, far more than the $282 offered by those who read the Cambridge Audio brochure. Sadly, it appeared that mistrust in marketing information runs so deeply that it colors our entire perception—even in the face of firsthand, direct experience—causing us to enjoy the experience much less than we otherwise would. (And this happens with relatively trusted brands. Just imagine what would happen with distrusted ones.)

by coming to understand trust as an important, tangible public resource to be protected and cared for, organizations could do a great deal to restore it. A few are beginning to take great care to create and maintain trust, and do what they can to prevent its possible deteriorations.

The result surprised even us: the students who had been asked to recall the Ten Commandments had not cheated at all. They averaged three correct answers—the same basic score as the group that could not cheat, and one less than those who were able to cheat but had recalled the names of the books.

FOR ONE, PERHAPS we could bring the Bible back into public life. If we only want to reduce dishonesty, it might not be a bad idea. Then again, some people might object, on the grounds that the Bible implies an endorsement of a particular religion, or merely that it mixes religion in with the commercial and secular world. But perhaps an oath of a different nature would work.

What especially impressed me about the experiment with the Ten Commandments was that the students who could remember only one or two Commandments were as affected by them as the students who remembered nearly all ten. This indicated that it was not the Commandments themselves that encouraged honesty, but the mere contemplation of a moral benchmark of some kind.

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.

nonmonetary currencies can lead us astray. They let us bypass our conscience and freely explore the benefits of dishonesty.

We can hope to surround ourselves with good, moral people, but we have to be realistic. Even good people are not immune to being partially blinded by their own minds. This blindness allows them to take actions that bypass their own moral standards on the road to financial rewards. In essence, motivation can play tricks on us whether or not we are good, moral people.

When we deal with money, we are primed to think about our actions as if we had just signed an honor code.

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.

But, as the results presented in this book (and others) show, we are all far less rational in our decision making than standard economic theory assumes. Our irrational behaviors are neither random nor senseless—they are systematic and predictable. We all make the same types of mistakes over and over, because of the basic wiring of our brains.

Behavioral economists, on the other hand, believe that people are susceptible to irrelevant influences from their immediate environment (which we call context effects), irrelevant emotions, shortsightedness, and other forms of irrationality

The good news is that these mistakes also provide opportunities for improvement. If we all make systematic mistakes in our decisions, then why not develop new strategies, tools, and methods to help us make better decisions and improve our overall well-being?

research in behavioral economics points to many possible reasons why people are not saving enough for retirement. People procrastinate. People have a hard time understanding the real cost of not saving as well as the benefits of saving. (By how much would your life be better in the future if you were to deposit an additional $1,000 in your retirement account every month for the next 20 years?) Being “house rich” helps people believe that they are indeed rich. It is easy to create consumption habits and hard to give them up. And there are many, many more reasons.

As long as these mechanisms provide more benefits than costs, we should consider them to be free lunches—mechanisms that provide net benefits to all parties.

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.

Once we understand when and where we may make erroneous decisions, we can try to be more vigilant, force ourselves to think differently about these decisions, or use technology to overcome our inherent shortcomings. This is also where businesses and policy makers could revise their thinking and consider how to design their policies and products so as to provide free lunches.