PREDICTABLY IRRATIONAL

Dan Ariely

THE TRUTH ABOUT RELATIVITY 01Why everything is relative – even when it shouldn’t be

• Most people don’t know what they

want until they see it in context

• We only compare things that are easily

comparable

• Often a decoy is employed, tricking

people into the ‘easy’ choice

THE FALLACY OF SUPPLY AND DEMAND 02Why the price of pearls - and everything else - is up in the air

• Our first impressions (of price/product)

are imprinted in our minds and

become an anchor

• This anchor affects future decisions

about what we are willing to pay

• ‘Arbitrary coherence’ decrees that

although initial prices can be

"arbitrary," once those prices are

established in our minds, they will

shape not only present prices but also

future ones (thus making them

"coherent")

THE COST OF ZERO 03Why we often pay too much when we pay nothing

• Zero is a source of irrational

excitement

• Most transactions have an up side and

a down side, when something is free

we forget the downside

• Think quickly: Would you pick a $10

voucher for free or a $20 voucher for

$7. Most people opt for the free

voucher rather than the voucher that

would give them 3 extra dollars

THE COST OF SOCIAL NORMS 04Why we are happy to do things, but not when we are paid to do them

• Social norms e.g. Opening a door for

someone or helping a friend move

house vs Market norms - payments

• Lawyers asked to work for $30 an hour

for needy retirees refused, comparing

the $30 to their market salary.

However, they were willing to offer

their services for free

• When on a date, never mention the

price of the food; even though it is

explicitly printed

THE INFLUENCE OF AROUSAL 05Why hot is much hotter than we realise

• Men were sought out and asked

questions about sexual and moral

decisions, these questions were then

asked to them again in a high state of

arousal

• The magnitude of underprediction by

the participants was substantial, we

are unable to predict the ways in

which our emotions can take control

of our behaviour

• It is this concept of having two sides

to ourselves that inspired Dr Jekyll

and Mr Hyde

THE PROBLEM OF PROCRASTINATION AND SELF-CONTROL 06Why we can’t make ourselves do what we want to do

• Americans are not only not saving but

are spending more than they earn, the

average American family now has six

credit cards

• As with losing weight, we lose the

battle to save, procrastinating instead

• Students who were allowed to set their

own deadlines for submitting

coursework tended to do better when

they spaced the timings, realising their

tendency to procrastinate

THE HIGH PRICE OF OWNERSHIP 07Why we overvalue what we have

• Much of our life story can be told by

describing the ebb and flow of our

particular possessions

• We fall in love with what we already

have, we focus on what we may lose

and we assume other people will see

the transaction from the same

perspective as we do

• Another peculiarity is that we begin to

feel ownership even before we own

something e.g. eBay

KEEPING DOORS OPEN 08Why options distract us from our main objective

• We cannot stand the idea of closing

doors on our alternatives

• In each case we give something up for

the sake of having these options

• Given a simple set up and clear goal,

all of us are quite adept at pursuing

the source of our satisfaction

THE EFFECT OF EXPECTATIONS 09Why the mind gets what it expects

• When we believe beforehand that

something will be good, generally it

will be good - and when we think it will

be bad, it will be bad

• To look at whether these influences

just change our beliefs or our

physiology as well, Ariely brewed two

beers, one with vinegar, one without.

• The students who were told about the

vinegar after drinking the beer liked it

a lot more than those told first, just as

much as those who were not told at all

THE POWER OF PRICE 10Why a 50-cent aspirin can do what a penny aspirin can’t

• In general, two mechanisms shape the

expectations that make placebos work;

belief and conditioning e.g. Pavlov’s

dogs

• On the basis of price alone it is easy to

imagine that a $4000 couch will be

more comfortable than a $400 couch

• Marketers rely on perceived value but

this can become real value if the

customer is getting more satisfaction

from the promoted product

THE CONTEXT OF OUR CHARACTER, PART I 11Why we are dishonest, and what we can do about it

• Decisions about honesty and

dishonesty relate to the size of the

transgression

• People cheat when they have the

chance to do so but they don’t cheat

as much as they could

• Once they begin thinking about

honesty they stop cheating completely

THE CONTEXT OF OUR CHARACTER, PART II 12Why dealing with cash makes us more honest

• Cheating is a lot easier when it's a step

removed from money

• Stealing a Coke vs stealing 1 dollar

• What do we do now that cash is

disappearing?

BEER AND FREE LUNCHES 13What is behavioural economics, and where are the free lunches?

• When people in a bar or restaurant

order out loud in sequence, they choose

differently from what they order in

private, opting for variety and are

generally less happy with their choice

• The first person to order in the

sequential group was the happiest in

the group

• Standard economics assumes that we

are rational; making logical, sensible

decisions. In fact we are far less rational

and our irrational behaviours are

systematic and predictable