Do You Really Know Why You Do What You Do? — Predictably Irrational by Dan Ariely

Detailed Book Notes

About Predictably Irrational

Subtitled “The Hidden Forces That Shape Our Decisions,” Dan Ariely’s Predictably Irrational is your doorway into the world of behavioral psychology, the science of why people do what they do, and why they’re so unpredictable when they do it.

The truth is, you and I and everyone else are not purely rational creatures. But understanding where the irrationality comes in can help us deal with ourselves and others more effectively.

Using stories and research conducted over the years, Ariely explains how and sometimes why human brains work the way they do — and why reason alone is not enough to account for all of our behavioral choices.

Table of Contents

  • Introduction: How an injury led me to irrationality and to the research described here
  • Chapter 1 The Truth About Reality: Why everything is relative — even when it shouldn’t be
  • Chapter 2 The Fallacy of Supply and Demand: Why the price of pearls — and everything else — is up in the air
  • Chapter 3 The Cost of Zero Cost: Why we often pay too much when we pay nothing
  • Chapter 4 The Cost of Social Norms: Why we are happy to do things, but not when we are paid to do them
  • Chapter 5 The Influence of Arousal: Why hot is much hotter than we realize
  • Chapter 6 The Problem of Procrastination and Self-Control: Why we can’t make ourselves do what we want to do
  • Chapter 7 The High Price of Ownership: Why we overvalue what we have
  • Chapter 8 Keeping Doors Open: Why options distract us from our main objective
  • Chapter 9 The Effect of Expectations: Why the mind gets what it expects
  • Chapter 10 The Power of Price: Why a 50-cent aspirin can do what a penny aspirin can’t
  • Chapter 11 The Context of Our Character, Part I: Why we are dishonest, and what we can do about it
  • Chapter 12 The Context of Our Character, Part II: Why dealing with cash makes us more honest
  • Chapter 13 Beer and Free Lunches: What is behavioral economics, and where are the free lunches?
  • Introduction: How an injury led me to irrationality and to the research described here
  • Chapter 1 The Truth About Reality: Why everything is relative — even when it shouldn’t be
  • Chapter 2 The Fallacy of Supply and Demand: Why the price of pearls — and everything else — is up in the air
  • Chapter 3 The Cost of Zero Cost: Why we often pay too much when we pay nothing
  • Chapter 4 The Cost of Social Norms: Why we are happy to do things, but not when we are paid to do them
  • Chapter 5 The Influence of Arousal: Why hot is much hotter than we realize
  • Chapter 6 The Problem of Procrastination and Self-Control: Why we can’t make ourselves do what we want to do
  • Chapter 7 The High Price of Ownership: Why we overvalue what we have
  • Chapter 8 Keeping Doors Open: Why options distract us from our main objective
  • Chapter 9 The Effect of Expectations: Why the mind gets what it expects
  • Chapter 10 The Power of Price: Why a 50-cent aspirin can do what a penny aspirin can’t
  • Chapter 11 The Context of Our Character, Part I: Why we are dishonest, and what we can do about it
  • Chapter 12 The Context of Our Character, Part II: Why dealing with cash makes us more honest
  • Chapter 13 Beer and Free Lunches: What is behavioral economics, and where are the free lunches?

Introduction: How an injury led me to irrationality and to the research described here

My goal, by the end of this book, is to help you fundamentally rethink what makes you and the people around you tick.

Ariely once suffered an accident that left him with 3rd-degree burns over 70% of his body. During the painful recovery process, he had to endure nurses ripping off and replacing bandages.

Nurses thought it would hurt less if they did it quickly, but later, Ariely conducted studies and discovered that people feel less pain if treatments are carried out with lower intensity/longer duration. He realized then that many people misunderstand the consequences of their behaviors, leading to repeated wrong decisions.

In other words, humans are predictably irrational.

Behavioral economics: combines aspects of pscyhology and economics.

Chapter 1 The Truth About Reality: Why everything is relative — even when it shouldn’t be

Ariely noticed one day that The Economist offered three subscriptions: an internet sub for $59, a print sub for $125, and a print and web sub for $125. Why?

Humans rarely chooose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.

In other words, folks don’t know what they want ’til they see it in context.

We don’t even know what we want to do with our lives — until we find a relative or a friend who is doing just what we think we should be doing.

Thinking is difficult and sometimes unpleasant.

Thus, The Economist marketers made the choice of subs a no-brainer — compared to the print only price, the print-and-web price looks better.

When given 3 choices, most people take the middle choice.

That’s why menus often have high-priced entrees, even if no one buys them. Because though people won’t buy the most expensive dish on the menu, they’ll buy the 2nd most expensive.

And why real estate agents tend to show houses a certain way.

Decoy Effect: if your agent showed you 3 houses, 1 contemporary, 1 colonial, 1 colonial with a bad roof, you will probably choose the 1st colonial. Because you can compare the 2 colonials, but not the contemporary, so you won’t even think of that.

We like to make decisions based on comparisons.

That’s why Ariely suggests bringing a “similar but slightly less attractive friend” to a singles’ event — because people you want to attract have a hard time evaluating you with no one around to compare you to.

It was for good reason…that the Ten Commandments admonished “Neither shall you desire your neighbor’s hohuse nor field…or anything that belongs to your neighbor.” This might just be the toughest commandment to follow, considering that by our very nature we are wired to compare.

Your salary amount and happiness aren’t strongly linked. Rather, your satisfaction with your salary depends on what you make compared to peers.

The more we have, the more we want. And the only cure is to break the cycle of relativity.

Chapter 2 The Fallacy of Supply and Demand: Why the price of pearls — and everything else — is up in the air

In order to make a man covet a thing, it is only necessary to make the thing difficult to attain.— Mark Twain

Jeweler Assael created demand for Tahitian black pearls where there was none by making magazine ads setting them off against a spray of diamonds, rubies, and emeralds.

He anchored the black pearls to the finest gems in the world, and made people “imprint” on that price.

Arbitrary coherence: Although initial prices are arbitrary, once those prices are established in our minds, they will shape present AND future prices (this is the coherency)

When we buy a TV for $3,000, we judge all TVs relative to that price from then on. Our first decision resonates over a long series of decisions.

Herding: When a person sees a line in front of a restaurant, he thinks it must be a good restaurant and gets in line. Another person walks by, thinks the same thing, joins the line, and it expands.

Self-herding: We believe something is good or bad based on our previous behavior. We “line up behind ourselves” in subsequent experiences.

How Starbucks became successful: Dunkin Donuts sells coffee for only a couple bucks. So how did Starbucks get people to pay up to $4 for coffee? By making itself so different that people didn’t associate DD as an anchor. Starbucks used decor, names, etc., to make the experience feel different.

Work consists of whatever a body is obliged to do, and play consists of whatever a body is not obliged to do. — Mark Twain

How can we actively improve on our behaviors?

  • Become aware of our vulnerabilities
  • Question our habits — where did they begin?
  • What amount of pleasure will you be getting out of this? Can you cut back and use the money (time, energy) on something else?
  • Pay particular attention to the first decision in what will be a long stream.

Chapter 3 The Cost of Zero Cost: Why we often pay too much when we pay nothing

The Babylonians invented the concept of zero. And today everyone loves free stuff.

But free becomes a problem when the choice is between a free item and another item. Ex: you might buy something you didn’t want only because it comes with a “free second item.”

Why is that?

Most transactions have an up and downside, but free things make us forget the downside. It makes us see what is offered as more valuable than it is because we are intrinsically afraid of loss. Non-free items means we have a potential risk of making a bad decision.

When choosing between two products, we overreact to the free one.

But the cost of zero also applies to time. People may be willing to wait an hour in line for free food. Food manufacturers also use the free idea to sell things like fat-free, zero-calorie items.

The difference between one cent and zero is huge. To draw a crowd or sell more products, make something FREE.

How to avoid the cost of free:

Consider absolute more than relative value.

Chapter 4 The Cost of Social Norms: Why we are happy to do things, but not when we are paid to do them

There are two kinds of norms in life: social norms and market norms. To turn gifts (social norm world) into market norms, just mention money (how much the gift costs).

Ex: Ariely’s experiment found that participants who were told to think about money made them more self reliant and less willing to ask for help, or to help others.

Ex: Uri Gneezy studied a day care that tried to make parents pick up children on time by fining them for being late. This backfired because instead of feeling guilty about being late, the fine made parents feel like they were paying for their tardiness, turning the situation into one of market norms. Once the fine was removed, the guilt did not return.

What this means: when social norms collide with market norms, social norms go away for a long time. Social relationships aren’t easy to reestablish.

Companies sometimes try to evoke social norms to create customer loyalty. But the downside is if a company charges a fee or something to hurt the customer, they won’t shake it off easily. They’ll feel personally betrayed.

So if you’re a company you can’t have it both ways — you can’t treat customers personally one moment and impersonally the next. If you want a social relationship, be consistent.

The advantage of social exchange: today’s market is often in intangibles. Social norms can motivate people in a way money can’t.

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.

Chapter 5 The Influence of Arousal: Why hot is much hotter than we realize

Ariely conducted an experiment which found that people severely underpredict their ability to “behave” when they are aroused (sexually, but perhaps other emotional states like anger and excitement work similarly), making us “strangers to ourselves.”

And this inability to predict ourselves in different emotional states doesn’t improve with experience. We systematically undepredict how severely emotions can control our behavior.

To make informed decisions we need to understand the emotional state we will be in. Ex: Ariely’s wife tested her pain tolerance prior to childbirth by submerging her hand in ice water for 2 minutes in order to decide whether or not she wanted an epidural.

It may be that our models of human behavior need to be rethought. Perhaps there is no such thing as a fully integrated human being. We may, in fact, be a agglomeration of multiple selves.

Chapter 6 The Problem of Procrastination and Self-Control: Why we can’t make ourselves do what we want to do

Procrastination comes from the Latin pro — for and cras — tomorrow.

Ariely experimented with allowing his students to choose their own deadlines to turn in papers and found that 1) students procrastinate and 2) tightly restricting their freedom (imposing deadlines) is the best “cure.”

In life, the best choice may be to let people commit up front to their preferred plan of action.

Another way is to get other people to hold us accountable.

Chapter 7 The High Price of Ownership: Why we overvalue what we have

We are attached to what we have. We focus on what we may lose rather than what we may gain. And we assume others will see the transaction from our perspective — which is why we have difficulty selling used items to others.

Ownership peculiarities:

  • The more work you put into something, the more ownership you feel (hence Ikea’s build-your-own furniture)
  • We can feel ownership before we own something (Eg: bidding on online auctions — if someone tops your bid, you feel like someone stole something from you. This is also how ads work — seeing something makes us want it and think we have it. Having a money-back guarantee also counts on this)
  • Ownership isn’t limited to things, but also points of view/ideas. (This leads to ideologies)

There is no known cure for the “ills of ownership,” but being aware of it can help. And do your best to try to view all transactions as if you are a nonowner.

Chapter 8 Keeping Doors Open: Why options distract us from our main objective

In 210 BC, Chinese commander Xiang Yu burned his troops’ boats and crushed their cooking pots after they crossed the Yangtze River to force them to fight to the end.

We work to keep our options open, but we give things up for these options.

In the 1941 book Escape from Freedom, philosopher Erich Fromm argues that people are beset by a dizzying abundance of opportunity.

Choosing between two things that are similarly attractive is one of the most difficult decisions we can make. (see: Buridan’s ass)

We need to take into account the CONSEQUENCES OF NOT DECIDING.

Chapter 9 The Effect of Expectations: Why the mind gets what it expects

Whatever you tell people up front, they will probably agree with you not because of experience, but expectations.

Ariely found in an experiment that when he offered students upscale-looking coffee, people thought it tasted better/upscale as well.

When we believe beforehand that something will be good…it generally will be good — and when we think it will be bad, it will be bad.

Menus often use this. Deep descriptions may lead diners to expect greater things of food. Changing expectations can influence taste. And the power of presentation is huge.

You can increase a person’s enjoyment of a movie by saying it got great reviews.

Marketing is about providing information that will heighten someone’s anticipated and real pleasure.

The frontal lobe is connected to the pleasure centers, which may be why people enjoy Coke over Pepsi when the brand is known (but the opposite when not).

Expectations also shape stereotypes. We don’t just react differently when we have a stereotype of others, but stereotyped people themselves react differently when aware of their labels (when they’re primed with the label).

We can’t strip away our preconceptions, but we can at least acknowledge that we’re all biased, and look for an outside party to help us judge things we’re too close to.

Chapter 10 The Power of Price: Why a 50-cent aspirin can do what a penny aspirin can’t

In 2002, Dr. Moseley found that fake arthroscopies healed patients as much as real surgeries.

Rreseearchers found that 75% of the effect of 6 leading antidepressants could be duplicated by placebos.

Placebos run on the power of suggestion. 2 mechanisms make them work: 1) belief 2) conditioning.

Prices drive placebo effect.

Chapter 11 The Context of Our Character, Part I: Why we are dishonest, and what we can do about it

The cost of white collar theft and fraud is far higher than robberies.

The success of most people…almost always depends on the favour and good opinion of their neighbours and equals; and without a tolerably regular conduct these can very seldom be obtained. — Adam Smith

Ariely found that when subjects were asked to recall the Ten Commandments before taking a test where they were given an opportunity to cheat, cheating went down.

The word “profession” comes from the Latin “professs,” or “affirmed publicly.” It started with religion then spread to medicine and law.

Do oaths work as well as remembering the 10 Commandments? Only if they’re recalled right before the moment of temptation.

Let’s not forget that the United States holds a position of economic power in the world today partly because it is (or at least is perceived to be) one of the world’s most honest nations.

Chapter 12 The Context of Our Character, Part II: Why dealing with cash makes us more honest

Ariely found that if he put coke in a common fridge in a college dorm, it would be taken. But if he put cash in the same place, it would not.

Cheating is a lot easier when it’s a step removed from money.

Given the chance, people cheat. We easily rationalize our cheating, especially when it’s a step away from cash.

Chapter 13 Beer and Free Lunches: What is behavioral economics, and where are the free lunches?

We are not noble in reason, not infinite in faculty, and rather weak in apprehension.

Ariely found that when people order beer aloud in sequence, they order more varieties, but may enjoy it less. But when orders are private, people choose what they really want. Why?

People have a “need for uniqueness,” wanting to be different from others. So remember this next time you go to a restaurant. Stick with what you want, or announce your choice first.

Standard economics assumes people are rational, but we really aren’t. Yet our irrationalities are systematic and predictable.

Behavioral economists believe people are “susceptible to context effects (influences from immediate environment), irrelevant emotions, shortsightedness, and other forms of irrationality.”

We are pawns in a game whose forces we largely fail to comprehend.

But we aren’t helpless. Once we know when/where we might make erroroneous deicions, we can teach ourselves to think differently and be more vigilant.

Get your own copy of Predictably Irrational here (affiliate link)

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Sarah Cy

Sarah Cy

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(aka The Scylighter). Writer, musician, reader, daughter. Join our Merry Band, become a Brilliant Writer, and dazzle your readers! BeABrilliantWriter.com