Predictably Irrational

Dan Ariely

2008

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About the Authors

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Dan Ariely

• Israeli American professor of psychology and behavioral

economics

• Born: New York City, 1967

• He also holds an M.A. (1994) and a Ph.D. (1996) in cognitive

psychology from the University of North Carolina at Chapel Hill.

• He completed a second doctorate in business administration at

Duke University in 1998 - at the urging of Nobel economic sciences

laureate Daniel Kahneman

• Taught earlier at MIT Sloan School of Management

• Presently at Duke University and is the founder of The Center for

Advanced Hindsight

3 books thus far:

•Predictably Irrational

•The Upside of Irrationality

•The Honest Truth about Dishonesty

• Won the Ig Nobel Prize in medicine for their research

demonstrating that "high-priced fake medicine is more effective

than low-priced fake medicine."

Src: http://en.wikipedia.org/wiki/Dan_Ariely

http://danariely.com/photos/

Author’s thesis

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http://blog.usabilla.com/a-user-test-on-decoy-pricing-steer-decisions-and-increase-conversion/

RelativityWe dont have an internal value meter that tells

us how much things are worth, rather we focus on

the advantages of one thing over another

We make decisions based on comparison

Fallacy of Supply and Demand

The Cost of Zero Cost

Why we often pay too much when we pay for

nothing

For normal transactions, we consider both the

upside and downside, but when something is free

we forget

The cost of Social Norms

We are so often happy to do something without

pay but not when we are paid

Social Norms vs Market Norms

• Shouldnt cross over

• Social norms are:

• reciprocative

• warm

• fuzzy

• More effective in motivating people

• Market Norms are explicit and hard

Cost of

Ownership

Author’s thesis

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The Power of Price

Why a 50 cents aspirin can do what penny

Placebo effect

-the power of suggestion

Price – Quality perception

Context of our characterWhy are we so dishonest – what can we do about

it?

2 broad types of dishonesty

• Professional Crooks

• Common people who consider themselves

honest

Honesty is connected with our desire to please

Are connected with society ethics – they make us

feel good

Just before getting into the phase of dishonesty –

being reminded about honesty, morality goes a

long way in reducing such behavior

Being removed from cash increases the potential

of cheating – Credit cards?

Free LunchesWe are far less rational in making our decisions

than standard economics assumes

Our irrational behavior is more systematic than

we assume – in fact it is predictable

Behavioral Economics – tries to ground most of

standard economic questions on human behavior

Effect of

Expectations

Keeping doors

open

(Entrepreneurship?

)

Author’s thesis

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I see three broad themes that were discussed in the book:

Human Nature:

• The power of Relativity

• Procrastination and Self-

control

• Cost of Ownership

• Keeping doors open

• Effect of Expectations

• Honesty

• Social Norms

Market Application Focused:

• Fallacy of Supply and

Demand

• The Cost of Zero Cost

• The Power of Price

Behavioral Economics

Some interesting terms/concepts I got to know from the book:

Arbitrary Coherence (Imprinting)

Power of Expectations (Coke Pepsi)

Country of

http://www.slideshare.net/klong12001/predictably-irrational-by-dan-ariely?related=2

QUESTIONSTHANK YOU

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