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.

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.

Because even though people generally won’t buy the most expensive dish on the menu, they will order the second most expensive dish. Thus, by creating an expensive dish, a restaurateur can lure customers into ordering the second most expensive choice (which can be cleverly engineered to deliver a higher profit margin).

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.

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

Mark Twain once noted about Tom Sawyer, “Tom had discovered a great law of human action, namely, that in order to make a man covet a thing, it is only necessary to make the thing difficult to attain.”

The basic idea of arbitrary coherence is this: although initial prices (such as the price of Assael’s pearls) are “arbitrary,” once those prices are established in our minds they will shape not only present prices but also future prices (this makes them “coherent”).

anchors have an enduring effect for present prices as well as for future prices.

“If Tom had been a great and wise philosopher, like the writer of this book, he would now have comprehended that work consists of whatever a body is obliged to do, and that play consists of whatever a body is not obliged to do.”

Mark Twain

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

as our experiments demonstrate, what consumers are willing to pay can easily be manipulated, and this means that consumers don’t in fact have a good handle on their own preferences and the prices they are willing to pay for different goods and experiences.

in many cases we make decisions in the marketplace that may not reflect how much pleasure we can get from different items. Now, if we can’t accurately compute these pleasure values, but frequently follow arbitrary anchors instead, then it is not clear that the opportunity to trade is necessarily going to make us better off.

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

It’s no secret that getting something free feels very good. Zero is not just another price, it turns out. Zero is an emotional hot button—a source of irrational excitement.

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.

Zero is a different place. The difference between two cents and one cent is small. But the difference between one cent and zero is huge!

If you are in business, and understand that, you can do some marvelous things. Want to draw a crowd? Make something FREE! Want to sell more products? Make part of the purchase FREE!

Woody Allen: “The most expensive sex is free sex.”

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.

People are willing to work free, and they are willing to work for a reasonable wage; but offer them just a small payment and they will walk away.

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. Once the bloom is off the rose—once a social norm is trumped by a market norm—it will rarely return.

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.

We understand, for instance, that a salary alone will not motivate people to risk their lives. Police officers, firefighters, soldiers—they don’t die for their weekly pay. It’s the social norms—pride in their profession and a sense of duty—that will motivate them to give up their lives and health.

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.

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.

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.

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

Whenever the price is not part of the exchange, social norms become entangled. These social norms get people to consider the welfare of others and, therefore, limit consumption to a level that does not place too much of a burden on the available resource.

that every one of us, regardless of how “good” we are, underpredicts the effect of passion on our behavior.

When the boss criticizes us publicly, we might be tempted to respond with a vehement e-mail. But wouldn’t we be better off putting our reply in the “draft” folder for a few days?

it is easier for them to fight temptation before it arises than after it has started to lure them in.

avoiding temptation altogether is easier than overcoming it.

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.

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

Resisting temptation and instilling self-control are general human goals, and repeatedly failing to achieve them is a source of much of our misery.

we truly need is a method to curb our consumption at the moment of temptation, rather than a way to complain about it after the fact.

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.

“One man’s ceiling is another man’s floor.”

Adam Smith wrote, “Every man [and woman] . . . lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.”

Do you wonder why we often refuse to sell some of our cherished clutter, and if somebody offers to buy it, we attach an exorbitant price tag to it? As soon as we begin thinking about giving up our valued possessions, we are already mourning the loss.

ownership simply changes our perspective. Suddenly, moving backward to our pre-ownership state is a loss, one that we cannot abide.

ownership fundamentally changes our perspective. In the same way that we think our own kids are more wonderful and special than our friends’ and neighbors’ children (regardless of whether our children deserve such esteem), we overvalue everything that we own, whether it’s a pair of basketball tickets or our domiciles.

how many times have we bought something on sale not because we really needed it but because by the end of the sale all of those items would be gone, and we could never have it at that price again?

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.

choosing between two things that are similarly attractive is one of the most difficult decisions we can make.

That’s what marketing is all about—providing information that will heighten someone’s anticipated and real pleasure.