Index
Predictably Irrational: The Hidden Forces that Shape Our Decisions (Ariely, Dan)
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 are always looking at the things around us in relation to others.
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.
we are wired to compare.
That’s a lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity.
decoy effect
“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.”
That our first decisions resonate over a long sequence of decisions. First impressions are important,
We call this type of behavior herding. It happens when we assume that something is good (or bad) on the basis of other people’s previous behavior, and our own actions follow suit.
You might begin by questioning that habit. How did it begin? Second, ask yourself what amount of pleasure you will be getting out of it. Is the pleasure as much as you thought you would get? Could you cut back a little and better spend the remaining money on something else? With everything you do, in fact, you should train yourself to question your repeated behaviors.
We should also pay particular attention to the first decision we make in what is going to be a long stream of decisions (about clothing, food, etc.). When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention.
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.
the sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions—not at all a reflection of our true preferences or our level of demand.
humans are intrinsically afraid of loss. The real allure of FREE! is tied to this fear. There’s no visible possibility of loss when we choose a FREE! item (it’s free). But suppose we choose the item that’s not free. Uh-oh, now there’s a risk of having made a poor decision—the possibility of a loss. And so, given the choice, we go for what is free.
Zero is not just another discount. 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!
There are many examples to show that people will work more for a cause than for cash.
The conclusion: no one is offended by a small gift, because even small gifts keep us in the social exchange world and away from market norms.
for heaven’s sake don’t mention the price of the selections.
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.
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.
to be flexible, concerned, and willing to pitch in. That’s what a social relationship delivers.
But money has also taken on a life of its own. As we have seen, it can remove the best in human interactions.
We should probably first rethink school curricula, and link them in more obvious ways to social goals (elimination of poverty and crime, elevation of human rights, etc.), technological goals (boosting energy conservation, space exploration, nanotechnology, etc.), and medical goals (cures for cancer, diabetes, obesity, etc.) that we care about as a society.
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.
Money is not accepted at Burning Man. Rather, the whole place works as a gift exchange economy—you give things to other people, with the understanding that they will give something back to you (or to someone else) at some point in the future
life with fewer market norms and more social norms would be more satisfying, creative, fulfilling, and fun.
Even so, we all systematically underpredict the degree to which arousal completely negates our superego, and the way emotions can take control of our behavior.
LOOKING FROM ONE emotional state to another is difficult. It’s not always possible; and as Sumi learned it can be painful. But to make informed decisions we need to somehow experience and understand the emotional state we will be in at the other side of the experience. Learning how to bridge this gap is essential to making some of the important decisions of our lives.
that tightly restricting their freedom (equally spaced deadlines, imposed from above) is the best cure for procrastination
simply offering the students a tool by which they could precommit to deadlines helped them achieve better grades.
Because without precommitments, we keep on falling for temptation.
the best course might be to give people an opportunity to commit up front to their preferred path of action. This approach might not be as effective as the dictatorial treatment, but it can help push us in the right direction (perhaps even more so if we train people to do it, and give them experience in setting their own deadlines). What’s the bottom line? We have problems with self-control, related to immediate and delayed gratification—no doubt there. But each of the problems we face has potential self-control mechanisms, as well. If we can’t save from our paycheck, we can take advantage of our employer’s automatic deduction option; if we don’t have the will to exercise regularly alone, we can make an appointment to exercise in the company of our friends. These are the tools that we can commit to in advance, and they may help us be the kind of people we want to be.
simplification is one mark of real genius.
OWNERSHIP PERVADES OUR lives and, in a strange way, shapes many of the things we do. 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.” That’s an awesome thought. Much of our life story can be told by describing the ebb and flow of our particular possessions—what we get and what we give up. We buy clothes and food, automobiles and homes, for instance. And we sell things as well—homes and cars, and in the course of our careers, our time.
The first quirk, as we saw in the case of the basketball tickets, is that we fall in love with what we already have.
The second quirk is that we focus on what we may lose, rather than what we may gain.
Our aversion to loss is a strong emotion, and as I will explain later in the book, one that sometimes causes us to make bad decisions.
The third quirk is that we assume other people will see the transaction from the same perspective as we do.
Another peculiarity is that we can begin to feel ownership even before we own something.
OWNERSHIP IS NOT limited to material things. It can also apply to points of view.
My own approach is to try to view all transactions (particularly large ones) as if I were a nonowner, putting some distance between myself and the item of interest. In this attempt, I’m not certain if I have achieved the uninterest in material things that is espoused by the Hindu sannyasi, but at least I try to be as Zen as I can about it.
The truth is that they could have made more money by picking a room—any room—and merely staying there for the whole experiment! (Think about that in terms of your life or career.)
Erich Fromm wrote a book called Escape from Freedom. In a modern democracy, he said, people are beset not by a lack of opportunity, but by a dizzying abundance of it.
We may work more hours at our jobs, for instance, without realizing that the childhood of our sons and daughters is slipping away. Sometimes these doors close too slowly for us to see them vanishing.
What we need is to consciously start closing some of our doors. Small doors, of course, are rather easy to close. We can easily strike names off our holiday card lists or omit the tae kwon do from our daughter’s string of activities.
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.
focusing on the similarities and minor differences between two things was to take into account the consequences of not deciding.
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.
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. Of course, accepting the word of a third party is not easy and not always possible; but when it is possible, it can yield substantial benefits. And for that reason alone, we must continue to try. Di’ tutte queste cose agli altri, ma in modo da udire anche tu, nel dirle; scrivile, ma per leggerle mentre le scrivi; e rivolgi ogni tuo impegno a migliorare i costumi e a placare il furore delle passioni. Sia tua cura non di saper di più, ma di sapere meglio.
GENERAL, TWO mechanisms shape the expectations that make placebos work. One is belief—our confidence or faith in the drug, the procedure, or the caregiver. Sometimes just the fact that a doctor or nurse is paying attention to us and reassuring us not only makes us feel better but also triggers our internal healing processes. Even a doctor’s enthusiasm for a particular treatment or procedure may predispose us toward a positive outcome. The second mechanism is conditioning. Like Pavlov’s famous dogs (that learned to salivate at the ring of a bell), the body builds up expectancy after repeated experiences and releases various chemicals to prepare us for the future.
there is nothing “just” about the power of a placebo, and in reality it represents the amazing way our mind controls our body. How the mind achieves these amazing outcomes is not always very clear. Some of the effect, to be sure, has to do with reducing the level of stress, changing hormonal secretions, changing the immune system, etc. The more we understand the connection between brain and body, the more things that once seemed clear-cut become ambiguous. Nowhere is this as apparent as with the placebo.
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
why not develop new strategies, tools, and methods to help us make better decisions and improve our overall well-being? That’s exactly the meaning of free lunches from the perspective of behavioral economics—the idea that there are tools, methods, and policies that can help all of us make better decisions and as a consequence achieve what we desire.
fact, 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.
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.