Predictably Irrational - are you?
Dan Ariely's Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions was another interesting read in the how-do-we-think category. It explores some of the common beliefs we have about the way people think and act, and shows where some of these things aren't quite what we are taught.
The title comes from the traditional economists view of the rational actor - that we can think of people acting in a way that is clearly rational and model their behaviors accordingly. Ariely's discussion centers around observations, questions, and experiments that show that traditional rationality is not always in play - people behave irrationally. But this irrationality is understandable - predictable even.
Each chapter focuses on a topic that Arielly (and others) have studied and found results that are either surprising or not, but almost always contrary to what one might expect. And I appreciate how he summarizes the section with ideas on how to overcome or make use of the particular irrationality described. Here are some items I highlighted or picked out for further pondering:
The first chapter talks about the importance of having similar items when we are making comparisons and decisions. Having to chose to buy item A by itself is difficult without similar items or experience. But having items A and B to compare, makes it easier. Even more interesting, marketers can use this to guide customers to the "right" choice.
Defining procrastination: "Giving up on our long-term goals for immediate gratification." This comes up in the section on why it is difficult for us to do "what is good for us" instead of the immediate, from savings to healthcare to writing term papers in college. Suggestions on overcoming procrastination about, but this section gives some hints that we need to think about the "good for us" items in a different way. Especially in connection with the chapter on ownership - we find it hard to think about negatives that are not right in front of us (high cholesterol, savings), and we want to keep what we have now (money, cookies).
Linking to the first chapter on relative value, the book also had discussions on how we value what we have over what we don't. Another way to see this is that we value our experience of the things we have much more than we value the cost of acquiring something similar - housing market, tickets to events, our vehicles, etc. This makes the question of selling things to which we have strong attachments rather interesting. Even expectations of a thing changes how we perceive it: "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 be bad."
The materials in the book are familiar from reading popular press and other discussions of the work of behavioral economists. These are the kinds of studies that end often up in capsule form in the Boston Globe Sunday Ideas section, though Ariely is obviously giving them more deeper treatment here. I even thought there were some parallels to the myth-busting in Freakonomics, although that seems to be much more focused on number-crunching, where Predictably Irrational uses behavioral experiments to demonstrate the concepts.
The summary comes down to this
Once we understand when and where we may make erroneous decisions, we can try to be more vigilant, force ourselves to think differently about these decisions, or use technology to overcome our inherent shortcomings.
The other nice thing throughout the book is that Ariely throws in examples from his own life and experiences that shows just how difficult this simple summary might be in practice.
Related: The discussion of our expectations of ourselves draws on the work on Kahneman and cognitive biases. And of course this reminded me of Jim Benson's e-book on cognitive biases, Why Plans Fail: Cognitive Bias, Decision Making, and Your Business (and my review).
[Photo: "pi" by Robert Couse-Baker]
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