Predictably Irrational: Notes & Review

PREDICTABLY IRRATIONAL book cover

“Predictably Irrational” (2008) is a popular psychology book.
Dan Ariely, the author, explains through studies and examples that not only we are irrational, but that we often follow “patterns of irrationality” which makes us irrational in a predictable fashion.

Bullet 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

Summary

About The Author: Dan Ariely started out studying physics and mathematics and only later transferred to psychology.
Today he teaches psychology and behavioral psychology at Duke University.

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:

  1. Internet-only subscription: $59
  2. Print-only subscription: $125
  3. 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:

  1. Internet-only subscription: $59
  2. 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.

Here is another 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 seems 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?

The Same Applies 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:

  1. Attractive Mate One
  2. Attractive Mate Two
  3. Less Attractive Mate Three and similar to Attractive Mate Two

Now most people -75% as per Dan Ariely’s MIT experiment- will go for Attractive Mate Two because they can compare it to Less Attractive Mate Three.

Chapter 2: The Fallacy of Supply and Demand

Supply and demand is not a realistic model.

Why?

Because we comprehend the world and assess values based on comparison. There is no direct relation between price and demand.

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 to a product you could  place that product among other highly expensive and luxury products. Then you could sell it for a price that is aligned to the products around instead of picking a price correlated to the costs and 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 price 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 products as being cheap or expensive.

This makes a lot of sense, since our brain does absorb information mainly when we pay full attention (read: The Talent Code).

Arbitrary Coherence

Arbitrary coherence is an extremely interesting phenomenon.

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 students 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 challenging and may fail -however, I got you covered, Tony Robbins talks about collapsing anchors in his Personal Power II

Self Herding & Building Habits

You probably know people tend to follow other people, right (social proof)?

Here’s what Dan Ariely adds, though: we “herd 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 any 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

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: rules you obey when you help a friend
  • Market Norms: 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 was asked to help pro bono and a good chunk agreed.
Another group of laywers 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. But 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 are also perceived as being in the social norms.
But small gifts with a clear price tag shifted the interaction into market norms because it told people exactly how much you paid for the gift,

Should You Pay For Dates?

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.

Companies Getting Social Norms Wrong

Mixing the two different realms of social and market norms 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:

People work harder for a cause than for cash

Chapter 5: The Influence of Arousal

Humans also become irrational while 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 (also read “Nudge“).

Chapter 6: Procrastination and Self-Control

Our tendency to procrastinate gets worse 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

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

We rarely make rational decisions when it comes to ownership.

The three major irrational quirks related to ownership and sales, the author says, are:

  1. Falling in love with what already possess
  2. We focus more on what we can lose (rather than gain)
  3. We assume others share our same feelings for our belongings

Other quirks of ownership are:

  1. The harder we work on something the more we appreciate it
  2. We feel ownership before we actually buy it

Feeling ownership before we actually buy a product is why selling techniques like the puppy close, test drives, or low ball techniques work.

And it’s the same reason why we often end up overbidding at auction sales. It’s because we try the product, or start imagining 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 thing, but many other times 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 makes a compelling case that by staying at something not only we get better, but we also start liking it more.

indecision in predictably irrational

Chapter 9: The Effect of Expectations

You know this, don’t you:

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 coffee that was presented in fancy cups and in upscale environments because the cups and environments led them to believe the quality of the coffee 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 difference 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.

Stereotypes Work on Expectations

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.

The mind gets what it expects

Chapter 10: The Power of Price

You know about placebos, right?

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.

Chapter 11: The Context of Our Character, Part I

The total costs of employees theft or fraud is higher than all the other theft combined.

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.

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 says, we are far less rational than economic models lead us to believe we are.
And there is a major reward to reap once we admit it and take steps to overcome our limitations.

Also read:

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.

PREDICTABLY IRRATIONAL book cover

Practical Applications

  • 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 is 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.

  • Use Deadlines

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.

CONS

  • WEIRD researches: both extrinsic and intrinsic motivation matter

Some of those researches were heavily based on small undergraduate samples, and then generalized to the whole population.

Because a bunch of Duke undergrads work the same or harder when you reduce pay and compliment them more, doesn’t mean everyone -or even the majority- does.

In truth, both extrinsic and intrinsic motivation matter.
And which one matters more depends on individual, and context.

  • Some naive policy recommendations

The author recommends to scrap “cap and trade” policies to reduce pollution in favor of no-money exchange “social solutions”.

In my opinion, that’s really naive to believe that executive will decide to self-contain themselves in order to save the environment.

The author -and the readers- might want to review both the theory and the continuous real life examples of public goods games and the “tragedy of the commons“.
Also check out Matt Ridley’s “The Origins of Virtue” which very well explains both.

Review

Predictably Irrational is a great book for anyone interested in people or psychology.

There is something missing to get that “5 star” though.
To me, it’s that it ends being a sort of “list of anecdotes” book. The narrative of “predictably irrational” sounds good for marketing, but people are not that predictable after all, either in their rationality or irrationality.

And “Predictably Irrational” falls somewhat in the middle.
It’s not exactly a behavioral economics book, not exclusively a psychology text and not fully an analysis on influence and persuasion.

It’s a mix of all of them, and it does a great job on all of them. Most of all, I loved the differentiation between “social” and “moral” rules. But it fell short in weaving into a coherent narrative.

“Predictably Irrational” felt a bit a jack of all trades in a market that is quite saturated of psychology books dealing with similar topics.
So: interesting, yes, memorable no.

That being said, I did enjoy it and I do recommend “Predictably Irrational”.

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