Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions

3.8 180
by Dan Ariely
     
 

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"A marvelous book… thought provoking and highly entertaining."
—Jerome Groopman, New York Times bestselling author of How Doctors Think

"Ariely not only gives us a great read; he also makes us much wiser."
—George Akerlof, 2001 Nobel Laureate in Economics

"Revolutionary."
New York Times Book

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Overview

"A marvelous book… thought provoking and highly entertaining."
—Jerome Groopman, New York Times bestselling author of How Doctors Think

"Ariely not only gives us a great read; he also makes us much wiser."
—George Akerlof, 2001 Nobel Laureate in Economics

"Revolutionary."
New York Times Book Review

Behavioral economist and New York Times bestselling author Dan Ariely offers a much-needed take on the irrational decisions that led to our current economic crisis.

Editorial Reviews

David Berreby
…this sly and lucid book is not about your grandfather's dismal science. Ariely's trade is behavioral economics, which is the study, by experiments, of what people actually do when they buy, sell, change jobs, marry and make other real-life decisions…[Ariely] is good-tempered company—if he mentions you in this book, you are going to be called "brilliant," "fantastic" or "delightful"—and crystal clear about all he describes. But Predictably Irrational is a far more revolutionary book than its unthreatening manner lets on. It's a concise summary of why today's social science increasingly treats the markets-know-best model as a fairy tale.
—The New York Times
Kirkus Reviews
Most people don't know what they want and don't know that they want it-until they see it and the reptilian brain kicks in. "Everything is relative," writes economist Ariely (Behavioral Economics/MIT), "and that's the point." His book, a cousin to Freakonomics and The Long Tail, is a spry treatise on how the world works and how we spend our money based on other people's rules. Knowing that everything is relative, says Ariely, a merchandiser will display a 19-inch television next to 26-inch and 32-inch models, the prices progressing from $210 to $385 to $580, with the point being to sell the nicely profitable, nicely midsize model first. Of course, because we want more relative to what we have, that merchandiser will hope to see us again, now clamoring for the bigger, more expensive model. Thus the economy chugs along, and thus our credit debt deepens. When the time comes to buy that bigger goodie, then we will respond to an "anchor price" that somehow worms its way into our mind. This is the same anchor price that leads us to think that a four-dollar cup of coffee is acceptable, and after doing it once, we do it again, for we now "assume that this is the way you want to spend your money." Is it? Maybe not, but people are funny creatures of habit, and it is for all of us that Ariely has a brilliant solution to a problem that is very real: "a self-control credit card that would let people restrict their own spending behavior," categorically and overall, fixing, say, grocery spending at $200 a week and coffee spending at $75 a month. Fat chance of it catching on, he allows: After all, the credit-card companies make $17 billion a year in interest charges. They know our irrational ways, too.Make a point of seeing this book. That way you'll know you want it, and you will.
Entertainment Weekly
“Ariely’s book addresses some weighty issues . . . with an unexpected dash of humor.”
USA Today
“Surprisingly entertaining. . . . Easy to read. . . . Ariely’s book makes economics and the strange happenings of the human mind fun.”
The New Yorker
“A taxonomy of financial folly.”
Boston Globe
“In creative ways, author Dan Ariely puts rationality to the test. . . . New experiments and optimistic ideas tumble out of him, like water from a fountain.”
Financial Times
“Inventive. . . . An accessible account. . . . Ariely is a more than capable storyteller . . . If only more researchers could write like this, the world would be a better place.”
New York Times Book Review
“Sly and lucid. . . . Predictably Irrational is a far more revolutionary book than its unthreatening manner lets on.”
BusinessWeek
“An entertaining tour of the many ways people act against their best interests, drawing on Ariely’s own ingeniously designed experiments. . . . Personal and accessible.”
Time magazine
“A fascinating romp through the science of decision-making that unmasks the ways that emotions, social norms, expectations, and context lead us astray.”

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Product Details

ISBN-13:
9780061958724
Publisher:
HarperCollins Publishers
Publication date:
06/23/2009
Sold by:
HARPERCOLLINS
Format:
NOOK Book
Pages:
384
Sales rank:
47,211
File size:
1 MB

Read an Excerpt

Predictably Irrational
The Hidden Forces That Shape Our Decisions

Chapter One

The Truth about Relativity

Why Everything Is Relative—Even When It Shouldn't Be

One day while browsing the World Wide Web (obviously for work—not just wasting time), I stumbled on the following ad, on the Web site of a magazine, the Economist.

I read these offers one at a time. The first offer—the Internet subscription for $59—seemed reasonable. The second option—the $125 print subscription—seemed a bit expensive, but still reasonable.

But then I read the third option: a print and Internet subscription for $125. I read it twice before my eye ran back to the previous options. Who would want to buy the print option alone, I wondered, when both the Internet and the print subscriptions were offered for the same price? Now, the print-only option may have been a typographical error, but I suspect that the clever people at the Economist's London offices (and they are clever—and quite mischievous in a British sort of way) were actually manipulating me. I am pretty certain that they wanted me to skip the Internet-only option (which they assumed would be my choice, since I was reading the advertisement on the Web) and jump to the more expensive option: Internet and print.

But how could they manipulate me? I suspect it's because the Economist's marketing wizards (and I could just picture them in their school ties and blazers) knew something important about human behavior: humans rarely choose things in absolute terms. We don't have an internal value meter that tells us howmuch things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly. (For instance, we don't know how much a six-cylinder car is worth, but we can assume it's more expensive than the four-cylinder model.)

In the case of the Economist, I may not have known whether the Internet-only subscription at $59 was a better deal than the print-only option at $125. But I certainly knew that the print-and-Internet option for $125 was better than the print-only option at $125. In fact, you could reasonably deduce that in the combination package, the Internet subscription is free! "It's a bloody steal—go for it, governor!" I could almost hear them shout from the riverbanks of the Thames. And I have to admit, if I had been inclined to subscribe I probably would have taken the package deal myself. (Later, when I tested the offer on a large number of participants, the vast majority preferred the Internet-and-print deal.)

So what was going on here? Let me start with a fundamental observation: most people don't know what they want unless they see it in context. We don't know what kind of racing bike we want—until we see a champ in the Tour de France ratcheting the gears on a particular model. We don't know what kind of speaker system we like—until we hear a set of speakers that sounds better than the previous one. 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. Everything is relative, and that's the point. Like an airplane pilot landing in the dark, we want runway lights on either side of us, guiding us to the place where we can touch down our wheels.

In the case of the Economist, the decision between the Internet-only and print-only options would take a bit of thinking. Thinking is difficult and sometimes unpleasant. So the Economist's marketers offered us a no-brainer: relative to the print-only option, the print-and-Internet option looks clearly superior.

The geniuses at the Economist aren't the only ones who understand the importance of relativity. Take Sam, the television salesman. He plays the same general type of trick on us when he decides which televisions to put together on display:

36-inch Panasonic for $690
42-inch Toshiba for $850
50-inch Philips for $1,480

Which one would you choose? In this case, Sam knows that customers find it difficult to compute the value of different options. (Who really knows if the Panasonic at $690 is a better deal than the Philips at $1,480?) But Sam also knows that given three choices, most people will take the middle choice (as in landing your plane between the runway lights). So guess which television Sam prices as the middle option? That's right—the one he wants to sell!

Of course, Sam is not alone in his cleverness. The New York Times ran a story recently about Gregg Rapp, a restaurant consultant, who gets paid to work out the pricing for menus. He knows, for instance, how lamb sold this year as opposed to last year; whether lamb did better paired with squash or with risotto; and whether orders decreased when the price of the main course was hiked from $39 to $41.

One thing Rapp has learned is that high-priced entrées on the menu boost revenue for the restaurant—even if no one buys them. Why? Because even though people generally won't buy the most expensive dish on the menu, they will order the second most expensive dish. Thus, by 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).1

So let's run through the Economist's sleight of hand in slow motion.

As you recall, the choices were:

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

When I gave these options to 100 students at MIT's Sloan School of Management, they opted as follows:

1. Internet-only subscription for $59—16 students
2. Print-only subscription for $125—zero students
3. Print-and-Internet subscription for $125—84 students

Predictably Irrational
The Hidden Forces That Shape Our Decisions
. Copyright © by Dan Ariely. Reprinted by permission of HarperCollins Publishers, Inc. All rights reserved. Available now wherever books are sold.

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What People are saying about this

James Surowiecki
"Dan Ariely is a genius at understanding human behavior: no economist does a better job of uncovering and explaining the hidden reasons for the weird ways we act, in the marketplace and out. Predictably Irrational will reshape the way you see the world, and yourself, for good."--(James Surowiecki, author of The Wisdom of Crowds)
Jerome Groopman
"A marvelous book that is both thought-provoking and highly entertaining, ranging from the power of placebos to the pleasures of Pepsi. Ariely unmasks the subtle but powerful tricks that our minds play on us, and shows us how we can prevent being fooled."--(Jerome Groopman, Recanati Chair of Medicine, Harvard Medical School, and New York Times bestselling author of How Doctors Think)
Daniel Gilbert
"Filled with clever experiments, engaging ideas, and delightful anecdotes. Dan Ariely is a wise and amusing guide to the foibles, errors, and bloopers of everyday decision making."--(Daniel Gilbert, Professor of Psychology, Harvard University, and New York Times bestselling author of Stumbling on Happiness)
George Akerlof
"Predictably Irrational is wildly original. It shows why-much more often than we usually care to admit-humans make foolish, and sometimes disastrous, mistakes. Ariely not only gives us a great read; he also makes us much wiser."--(George Akerlof, 2001 Nobel Laureate in Economics, Koshland Professor of Economics, University of California at Berkeley)
Daniel McFadden
"This is going to be the most influential, talked-about book in years. It is so full of dazzling insights-and so engaging-that once I started reading, I couldn't put it down."--(Daniel McFadden, 2000 Nobel Laureate in Economics, Morris Cox Professor of Economics, University of California at Berkeley)
Charles Schwab
"The most difficult part of investing is managing your emotions. Dan explains why that is so challenging for all of us, and how recognizing your built-in biases can help you avoid common mistakes."--(Charles Schwab, Chairman and CEO, The Charles Schwab Corporation)

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