Summary: Predictably Irrational by Dan Ariely
Predictably Irrational is an investigation into some of the strange reasons that people make the choices they do. Dan Ariely shows us not only that these illogical behaviors are consistent, but that they can be explained as well.
The Stats
My Rating: 4.2/5
Goodreads Rating: 4.1/5
Amazon Rating: 4.6/5
Length: 247 Pages
Difficulty: 4/10
Genre: Psychology, Economics, Behavior
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What is Predictably Irrational About?
Predictably Irrational is a book about human behavior. We all would like to believe that we are always making our own choices without outside influence, but Dan Ariely shows that this is not always the case.
In each of the books chapters, Ariely explains experimental data along with real life examples of how people make seemingly irrational choices every day. These range from economic decisions to romance. The data shown throughout the book will surprise you and make you question the reasons for some of the choices you have made while also informing you how you can hack these behaviors to improve your decisions in the future.
A few of the principles explained in Predictably Irrational are:
Price Anchoring
The Power of Comparison
The Zero Effect
Each of these phenomenon helps to explain how we value things, how we choose between things, and how we can be enticed to desire something we didn't previously.
Price Anchoring, How We Value an Object
Price anchoring is an effect in behavioral economics that helps us decide how much something is worth. The general idea is that when we are first exposed to a price in relation to an object, we associate that price with that type of item in the future as well.
For example, if you purchased your first pair of shoes for $50, the next time you look at a pair of shoes you will decide if its expensive or cheap based on the previous price you paid for them. This explains why sometimes when you discuss how much you would spend on something with another person you may have very different ideas of what is expensive or not.
This seems very logical but in Predictably Irrational Ariely also shows us that this is not the only way price anchoring affects our perception. He tells of an exercise he ran with a class of 55 MIT business students.
The students were instructed to write down the last two digits of their social security number next to six products he provided. They were told to write whether or not they would pay that amount for each item and also the highest price they would be willing to pay for each as well.
The students told Ariely that they believed the social security numbers had no impact on their chosen values as they thought they had made these decisions logically.
Ariely found that the students with the highest numbers (80 to 99) consistently bid higher than those with the lowest (0-20). Those in the higher group bid 216 to 346 percent more for each product than the lower group.
This means that even despite our preconceived notion of how much an object should be worth, something as simple as seeing a random number prior to valuing the item can influence our perception.
The Power of Comparison, Choosing Between Options
Predictably Irrational also explains some of the ways that we decide between multiple options. Ariely explains an experiment he has run with his students about The Economist.
The Economist had offered two subscription services to their customers:
An internet subscription for $59
A print subscription for $125
They had found that most customers did not want to spend the extra for the print only service. Ariely has found in surveying students that 68% of people would choose the cheaper option. This caused a third options to be offered as an alternative:
An internet subscription for $59
A print subscription for $129
A print and internet subscription for $129
Adding this third option made a clear comparison between the two expensive options which draws more people to choose the better version. This is a common strategy employed by marketers as having two options that are directly comparable causes us to ignore the other different options. We like to know that one choice is better than another so we use the available information to make a choice even if there may be a cheaper alternative.
Ariely has found that by changing the options, the demand for the cheaper options goes down from 68% to 16%.
This effect is prevalent in areas where we don't know a lot of information about each individual option so we are forced to use the information in front of us to make a decision.
For example, when buying a house if you are presented with these three options:
A contemporary house
A colonial house
A colonial house with a damaged roof
You are much more likely to choose the second home becuase you can see it as better than number three and there is no information to compare with the first. Marketing experts will use this tactic often to drive consumers to choose a specific product.
The Zero Price Effect, the Enticing Power of Nothing
The zero price effect is a phenomenon in behavioral economics that drives humans to desire items that are free.
This is not so surprising as we all enjoy free items but it is interesting to see how powerful pricing something as free can be.
Ariely performed several experiments using candy. On his campus, he offered Lindt truffles for $0.15 and Hershey kisses for $0.01. He found that 73% of the subjects chose the truffles.
When he lowered the price of each by $0.01, the choices changed dramatically. Now only 31% would choose the truffle. Traditional economic theory would predict that the numbers should not change much as the comparison is still a difference of $0.14 but more people will choose the free option every time.
Ariely also shows that money does not need to be involved to cause the same effect. He conducted another experiment where he gave participants 3 free Hershey kisses. He offered to trade a small Snickers bar for 1 kiss and a large one for 2. The vast majority of people would choose to trade for the large given its size relative to the other candies.
When given the option to trade 1 kiss for the large Snickers or take the small for free, the participants would now take the free option even though the large snickers was also cheaper.
The explanation for this is that humans are quite loss-averse so we are cautious to lost money or objects to obtain something and when we see the option for free there is no loss and therefore no risk.
Who Should Read This Book?
If you are big into psychology, this book is an interesting dive into some of the ways that people think and behave that are counterintuitive. More practically, if you are in sales or marketing, this book has many lessons that will help you to develop practices to help your business succeed.
Who Should Avoid This Book?
If you do not like reading about studies or numbers, this book may not be for you. It can be somewhat slow getting through the experiments descriptions if you would just like to know the results, however the story is a very interesting one, albeit maybe not super useful to most people other than for entertainment.
Here’s some more information if you are interested in reading Predictably Irrational.