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

by Dan Ariely

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Overview

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

An important book. Full of valuable and entertaining insights that will make an impact on your business, professional, and personal life.” — Jack M Greenberg, Chairman, Western Union Company, Retired Chairman and CEO, McDonald's Corporation

Why do our headaches persist after we take a one-cent aspirin but disappear when we take a fifty-cent aspirin? Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?

When it comes to making decisions in our lives, we think we're making smart, rational choices. But are we? In this newly revised and expanded edition of the groundbreaking New York Times bestseller, Dan Ariely refutes the common assumption that we behave in fundamentally rational ways. From drinking coffee to losing weight, from buying a car to choosing a romantic partner, we consistently overpay, underestimate, and procrastinate. Yet these misguided behaviors are neither random nor senseless. They're systematic and predictable—making us predictably irrational.

Product Details

ISBN-13: 9780061353246
Publisher: HarperCollins Publishers
Publication date: 04/27/2010
Edition description: Expanded
Pages: 349
Sales rank: 24,386
Product dimensions: 5.20(w) x 7.90(h) x 1.00(d)

About the Author

Dan Ariely is the bestselling author of Predictably Irrational, The Upside of Irrationality, and The (Honest) Truth About Dishonesty. He is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University and is the founder of the Center for Advanced Hindsight. His work has been featured in the New York Times, the Wall Street Journal, the Washington Post, the Boston Globe, and elsewhere. He lives in North Carolina with his family.

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.

What People are Saying About This

Nassim Nicholas Taleb

“This is a wonderful, eye-opening book. Deep, readable, and providing refreshing evidence that there are domains and situations in which material incentives work in unexpected ways. We humans are humans, with qualities that can be destroyed by the introduction of economic gains. A must read!”

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.”

Nicholas Negroponte

“After reading this book, you will understand the decisions you make in an entirely new way.”

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.”

Chip Heath

“Freakonomics held that people respond to incentives, perhaps in undesirable ways, but always rationally. Dan Ariely shows you how people are deeply irrational, and predictably so.”

Kenneth Arrow

“Dan Ariely’s ingenious experiments explore deeply how our economic behavior is influenced by irrational forces and social norms. In a charmingly informal style that makes it accessible to a wide audience, PREDICTABLY IRRATIONAL provides a standing criticism to the explanatory power of rational egotistic choice.”

Paul Slovic

“Predictably Irrational is clever, playful,humorous, hard hitting, insightful, and consistently fun and exciting to read.”

Daniel Gilbert

“PREDICTABLY IRRATIONAL is a charmer-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.”

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.”

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