- 3 Sentences Summary
- Full Summary
- Chapter 1: The Truth About Relativity
- Chapter 2: The Fallacy of Supply and Demand
- Chapter 3: The Cost of Zero Cost
- Chapter 4: The Cost of Social Norms
- Chapter 5: The Influence of Arousal
- Chapter 6: Procrastination and Self-Control
- Chapter 7: The High Price of Ownership
- Chapter 8: Keeping Doors Open
- Chapter 9: The Effect of Expectations
- Chapter 10: The Power of Price
- Chapter 11: The Context of Our Character, Part I
- Chapter 12: The Context of Our Character, Part II
- Chapter 13: Beer and Free Lunches
- Practical Applications
3 Sentences Summary
- We have no idea of intrinsic values: we only assess it by comparison
- Rationality goes out the window when emotional or aroused
- We are very likely to cheat when we have the chance and when we can easily rationalize
Chapter 1: The Truth About Relativity
Dan Ariely says we don’t really comprehend the world around us in absolute terms, but we make sense of it via comparisons.
For example the author ran an experiment with The Economist newspaper. He asked his MBA students to pick among the different options presented, which were:
- Internet-only subscription: $59
- Print-only subscription: $125
- Print-and-Internet subscription: $125
The second print-only option makes no sense when we see the third one, so 84% picked the third one.
But when the students were presented with two options only 68% chose the cheaper Internet-only subscription:
- Internet-only subscription: $59
- Print-only subscription: $125
The print-only option is the decoy. It seems expensive and when we see that at the same price we can also get the Internet access, for free (!), the print-and-Internet seems immediately more attractive by comparison.
Dan Ariely presents another interesting example. Imagine you are undecided between a holiday in Venice and Florence. Both packages come with a free tour, how could you sway the decision? You could add a third package for Venice with a paid city tour. This third option seem the least attractive and nobody will pick it.
However it provides a term of comparison for Venice with a free city tour. Now most people will go for Venice with the free tour.
Interesting stuff isn’t it?
Relativity in Dating
And now the dating example. Imagine there are two good looking possible mates, mate one and mate one. Then we add a third one comparable to make two:
- Attractive Mate One
- Attractive Mate Two
- Less Attractive Mate Three and similar to Attractive Mate Two
Now most people -75% as per Dan Ariely’s MIT experimet- will go for Attractive Mate Two because they can compare it to Less Attractive Mate Three.
Chapter 2: The Fallacy of Supply and Demand
Since we comprehend the world and assess values based on comparison, the old economical idea of direct relation between price and demand is, simply, baloney.
Prices can easily become irrational when there’s no comparison or when also the other items of comparison are irrational.
Indeed when a consumer has no previous reference for a product you could proceed to place that product among other highly expensive and luxury products and assign it a price which is more aligned to the products around than, say to your cost of production or availability of your product.
Similarly, you can anchor your services early be mentioning a very high price at the beginning. Cialdini mentions a friend of his who would simply say “I’m not going to charge you a million dollar”. The simple sentence would make anything coming after seem like a very small number (check here Pre-Suasion).
Burning an Anchor
Dan Ariely says that prices tags are not necessarily anchored by themselves.
They do become an anchor when we seriously consider buying that product. At that point, we will compare each future product we review to that first pricing anchor, which we will use to judge future product as being cheap or expensive.
This makes a lot of sense, since our brain does absorb information mainly when we pay full focus (read: The Talent Code).
Arbitrary coherence is an extremely interesting phenomeon. It says we stay coherent with previous decisions, but the very first decision which gave impetus to our “rational coherence” might have been completely irrational.
For example an experiment had student write down their Social Security Number and then bid randomly on a few items. The students whose SSN ended between 80-99 were bidding 3 times higher compared to students who had written numbers ending between 0-19. Their bidding stayed constant compared to their first bid which also functioned as an anchor, but the very first bid had been irrationally anchored by their SSN.
Other experiments proved that changing an anchor once it has been set can prove challengenging and may failed -however, I got you covered, Tony Robbins talks about collapsing anchors in his Personal Power II–
Self Herding & Building Habits
You are probably familiar with the concept that we people tend to follow other people, a princple known as “Social Proof” (check Social Proof in Influence by Cialdini).
Here’s what Dan Ariely adds though: we “heard ourselves” by looking at our past behavior. For example you might not like Starbucks, but one day you happen to have a date there and have a good time. The day after you decide to give it another try and really like one of their coffe. The third time you pass by Starbucks you have now 2 previous great memories and you are much more likely to go in based on your own past behavior.
With positive experiences you anchor yourself to build new habits.
Chapter 3: The Cost of Zero Cost
In chapter three Dan Ariely talks about the emotional pull and huge call to action that “free” represents.
Even when a service is priced at a “symbolical price”, say less than 1 Euro, there’s a huge gap between that super small price and “free”. For example when free shipping was offered by Amazon, sales jumped. They jumped everywhere except in France. Where French people being more rational? Not really. In France the price was left at a symbolical 1 Frank (0.2 cents). When it was replaced by “free” sales jumped in France as well, even though the difference between 0.2 cents and free was meaningless.
Another example? Try to notice the length of the queue the next time you see some products offered “for free”. Of course those people in line probably don’t believe that time is money :).
Chapter 4: The Cost of Social Norms
Dan Ariely notices here that some people will work harder when there’s no monetary reward than when they are being paid to carry out the same action.
Ie.: people work harder for a cause than for cash.
The author divides the motivational forces in two camps:
- Social Norms
- Market Norms
Social norms are those you obey when you help a friend. Market norms are the rules you follow when you work for a salary. When you offer someone money to carry out a task they were doing because of social norms you bring a major shift in the interaction because you go from Social Norms to Market Norms.
For example a bunch of lawyers were asked to help pro bono and a good chunk agreed. Another group was asked to help for a sum money and most refused. When they were asked to help pro bono, social norms applied and some of them were happy to help. When they were asked to help for money, the market norms applied and the sum of money seemed low compared to their hourly fee, so they refused.
Small gifts were perceived as being in the social norms.
Small gifts with a clear price tag, for example telling people how much you paid for the gift, shifted the interaction into market norms.
Dates and Market Norms
Dan Ariely also reflects on expensive dates. Yes they will impress your date or your mother’s in law, but they risk shifting the relationship from social norms to market norms. And once you are into the market norms, it’s difficult going back to the social norms.
My note: indeed the risk is that of shifting the interaction from a meeting of two connected souls to an exchange. For example, his money for beauty. This is why many cool guys don’t appreciate women who expect the men has to pay for them (check: biggest early dating mistakes).
Using Extrinsic Motivation
Since a cause is a bigger motivator for many people than money, you should hire people who believe in your cause if you have a company. This is exactly what Peter Thiel says in Zero to One and the bond of people going after a cause is what he means when he says “mafia”. And this is why Daniel Pink says you should be careful in rewarding people with money because that doesn’t people feel as your friends or as part of a cause but more like employees working for a paycheck, which will reduce motivation.
I invite you to read Drive by Daniel Pink for more.
Companies Getting Social Norms Wrong
Dan Ariely says mixing the two different realms of social and market is a mistake many companies do when they try to present an image of friendly and trustworthy relationship with their customers but then hide fees or “punish” users with fines.
The same goes for the relationship companies/employees. The author says the current focus on short term gains and cost cutting is destroying the relationship by moving farther and farther towards a colder market norms realm. The author says, righteously so, that company can’t have it both ways. You can’t have loyal employees working hard for you and fire them if they get sick or when you need to meet Wall Street expectations.
On the topic also read:
- How to deal with a terrible boss when you have such a market-oriented boss
- Leaders East Last, to understand how real leaders, inclusive one behave
- The Rule of Social Exchange for more on social exchange
Chapter 5: The Influence of Arousal
Dan Ariely then explores how we become irrational while we are in “special states”, for example when very emotional or when sexually aroused.
In an experiment with Loewenstein Ariely asked students questions when they were sober and then when aroused. The questions included some like using condoms and the likelihood of administering drugs to a woman to increase the likelihood of questions. It was chilling enough to read that 5% of men answered they’d give women drugs to have sex, and even chillier to read that number jumped to 26% when put in an aroused state.
The bottom line is that we are not the same people when emotions take us over. This is why, the author suggests, it would be a good idea to plan for altered states when we are actually sober.
For example, systems that do not allow us to drive after drinking.
Chapter 6: Procrastination and Self-Control
Our tendency to procrastinate gets worst when we have total freedom, and the quality of our work drops.
Dan Ariely divided his class in 3 groups who were supposed to hand in three different papers. One group had no deadlines, just handing all the papers in by the end of the last class. The second group had self imposed deadlines. And the third group had deadlines set by himself for each single paper.
The group with “external deadlines” did the best. Second came the group with self imposed deadlines and last the one with no deadlines at all.
Self Control Hacks
I think the key here is when the author says that we all have procrastination issues, but those who do best are the ones who know and recognize their weakness and find ways around it.
With procrastination, pre-committing to specific dates works. Best of all, if you can set many different dates for a big project each sub-task with its own date.
If your issue is credit card spending, you could avoid credit cards or set a very low limit that simply won’t allow you to rack up debt with impulse decisions.
Chapter 7: The High Price of Ownership
Dan Ariely says we rarely make rational decisions when it comes to ownership. The three major irrational quirks related to ownership and sales, the author says, are:
- Falling in love with what already possess
- We focus more on what we can lose (rather than gain)
- We assume others share our same feelings for our belongings
Other quirks of ownership are:
- The harder we work on something the more we appreciate it
- We feel ownership before we actually buy it
Feeling ownership before we actually buy a product is why selling techniques like the puppy close, or test drives, or even law ball techniques work on us (here’s a sneaky low ball walk-through). And it’s the same reason why we often end up overbidding at auction sales. It’s because we try the product, or start imagine owning it, and we get addicted to those feelings that we don’t wanna lose them and just need to proceed with the buying it.
Chapter 8: Keeping Doors Open
Dan Ariely says we have an internal drive to keep our options open. Often it’s a good time, but many other time it only leads to wasted opportunities, decision making paralysis and a lack of specialization (to specialize read: Mastery).
Dan Ariely devised an experiment to find out if people were actually going to earn less money, or even pay, simply to keep the options open. And lo and behold, they did.
It’s much better than to choose something and then actively close the doors of other possibilities so that they don’t distract us any longer and can focus on something.
My Note: Angela Duckworth in Grit makes a compelling case that by staying at something not only we get better, but we also start liking it more.
Chapter 9: The Effect of Expectations
Chapter nine of Predictably Irrational deals with the well known effect of expectations. At the core, it says that if we expect something to be good, it’s likely going to be good and if we expect something to be bad, it’s likely going to be bad.
Ariely ran many different experiments highlighting that what we expect influence our decisions. For example, students preferred beer with vinegar drops in it, but when told about the vinegar drops, they all preferred the normal beer.
Students also rated higher the coffe that was presented in fancy cups and in upscale environments because the cups and environments led them to believe the quality of the coffe itself had to be superior.
Interestingly enough, Coca Cola says tests prove prefer Coca Cola, while Pepsi tests say people prefer Pepsi. They’re both right, the only different is that Pepsi’s tests were with covered logo, Coca Cola was with logo showing.
People were swayed by Coca Cola’s brand and picked Coke even though they actually would have preferred Pepsi when picking blind.
Expectations are also the reason why stereotypes have real effect. And we not only behave with people according to their stereotype, but we also behave ourselves according to our own stereotypes.
Women reminded of their gender before math exams performed more poorly compared to women who weren’t reminded of their gender. And Asians performed better when they were reminded of their ethnicity.
Chapter 10: The Power of Price
Dan Ariely here delves into the well known and real phenomena of placebo effect. Placebos can actually trigger internal chemical reactions that induce real changes in the patient.
What is also peculiar though is the impact that pricing has on efficacy.
Ariely ran an experiment with a placebo saying that 92% of patients experienced pain relief. He told one group the drug prices was $0.1 and another group he told the price was $2.5.
Almost everyone in the $2.5 group experienced improvement and only half in the $0.1 experienced pain relief.
When it comes
Chapter 11: The Context of Our Character, Part I
Chapter eleven starts by saying the total costs of employees theft or fraud is higher than all the other theft combined (a rogue employee is more dangerous than a group of malicious hackers, says Hadnagy in Social Engineering).
Dan Ariely explains that there are no clearly defined lines between cheaters and honest people. The rule of thumb is that most people are fairly honest but when given the chance, people tend to cheat.
The interesting finding though is that, when reminded of morals and ideals, people tend to behave honestly. When people were told to write down the 10 commandments, none in the group who couldn’t remember them cheated. The mere recall of a “moral authority” made people behave honestly.
Chapter 12: The Context of Our Character, Part II
Chapter twelve delves further into the concept of honesty and it’s even more interesting. It says that the more removed people are from cash and money, the easier it becomes to cheat.
An experiment left one dollar bills on a plate and coke cans in the refrigerator. The cans vanished quickly, the money always stayed here.
It’s because cash makes it obvious to ourselves and to our conscience that we’re stealing.
Also the more removed we are from the act of cheating, the more likely it is we will cheat. For example, Ariely says, it’s more likely we will boost our expenses report if our secretary hands it in for us rather than us doing it ourselves.
And we’re more likely to exaggerate our expense report if it’s a trip abroad than one in our own city.
Super interestingly, cheating is not much limited by risk, but it’s limited by our ability to rationalize our own actions to ourselves.
Chapter 13: Beer and Free Lunches
The last chapter provides an overall critic of the standard economics model of a rational consumer. Overall, Ariely say, we are far less rational than economic models lead us to to believe we are. And there are major reward to reap once we admit it and take steps to overcome our limitations.
Need to Uniqueness
Dan Ariely ran an experiment with four people ordering beer and found out that when they ordered aloud and publicly, more different varieties tended to be ordered.
He later found out that the difference in orders was correlated with the “need to be unique”. Such as, people would order differently from the other patrons at the table simply to express their own uniqueness, even if that sometimes meant changing their order from what they originally wanted to get or from what they knew they liked.
In cultures were conformity is valued, such as in Hong Kong, the opposite instead happened: uniformity rose as people ordered what other people at the table also ordered.
Base your pricing on what you want to earn
Don’t base your prices on the competition or you’ll be compared to your competition. Pricing are often irrational, so find an irrational way to excuse your high pricing.
Watch out for Anchors
Ask yourself about repeat behavior you show. It’s possibly it all started irrationally and it doesn’t benefit you anymore.
Break up bigger projects with staggered deadlines. Always give yourself deadlines when there are no external ones.
Prepare for When Irrational
There will be times you’re tired, aroused, emotional, angry or… Just drunk. Give yourself a line of conduct of what you will do and not do and what you will accept of yourself and others. And stick to them.
I am surprised how the “rational consumer” theories could even resist for so long in the face of obvious, very obvious quirks and irrationality of human behavior.
Yet, if it ever was necessary, books like Predictably Irrational smash that theory. And Dan Ariely does so by adding loads of value for us to better understand human nature and human psychology.
Definitely recommended to anyone who wants to understand human behavior a bit better.
Get Predictably Irrational
If you enjoy this summary consider getting Predictably Irrational through this link and at no additional costs to you, you will help this website keep the lights on: Get the book on Amazon