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Predictably Irrational: The Hidden Forces that Shape Our Decisions by [Ariely, Dan]
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Why do smart people make irrational decisions every day? The answers will surprise you. Predictably Irrational is an intriguing, witty and utterly original look at why we all make illogical decisions.

Why can a 50p aspirin do what a 5p aspirin can't? If an item is "free" it must be a bargain, right? Why is everything relative, even when it shouldn't be? How do our expectations influence our actual opinions and decisions?

In this astounding book, behavioural economist Dan Ariely cuts to the heart of our strange behaviour, demonstrating how irrationality often supplants rational thought and that the reason for this is embedded in the very structure of our minds.

Predicatably Irrational brilliantly blends everyday experiences with a series of illuminating and often surprising experiments, that will change your understanding of human behaviour. And, by recognising these patterns, Ariely shows that we can make better decisions in business, in matters of collective welfare, and in our everyday lives from drinking coffee to losing weight, buying a car to choosing a romantic partner.

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  • Format: Kindle Edition
  • File Size: 1305 KB
  • Print Length: 304 pages
  • Publisher: HarperCollins (6 March 2009)
  • Sold by: HarperCollins Publishers (AU)
  • Language: English
  • ASIN: B002RI9QJE
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  • Word Wise: Enabled
  • Screen Reader: Supported
  • Enhanced Typesetting: Enabled
  • Average Customer Review: 4.5 out of 5 stars 2 customer reviews
  • Amazon Bestsellers Rank: #21,528 Paid in Kindle Store (See Top 100 Paid in Kindle Store)

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This book takes you through some irrational decisions we make everyday, it will open your eyes to a new way of looking at decisions and maybe even change them.
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Revealing so many unexpected hard-wired responses.
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Most Helpful Customer Reviews on (beta) 4.4 out of 5 stars 1,107 reviews
10 of 10 people found the following review helpful
5.0 out of 5 stars The True Complexity of Human Minds 12 January 2016
By Kevin L. Nenstiel - Published on
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Let’s start with this simple premise: human beings don’t behave according to conventional economic models. Whether the capitalist supply-demand arc, or the Marxist labor dialectic, human behavior steadfastly resists slotting into categories experts consider “rational.” We often ignore our best interests, make choices which render us poorer and less happy, and cannot value our options reliably. Yet we do this in completely consistent, reliable ways. Why?

Israeli-American professor Dan Ariely holds doctorates in psychology and business. Through appointments at MIT, Stanford, and Duke, he has helped mold the still-young discipline of Behavioral Economics, a research field which examines human choices without preconceived models. His discoveries shed light on human reasoning, and why what seems unreasonable actually serves very consistent purposes. This book provides an interesting thumbnail introduction to a discipline still new and somewhat dangerous.

Consider how people will treasure something that costs more, assuming it’s more effective, better quality, or whatever. Anyone who’s ever slipped box wine into a posh bottle already knows this. Higher prices, subconsciously, translate into better products. Yet the arc shifts when the price hits zero. We’ll chose a measurably inferior but free product rather than pay one thin dime. This seems counter-rational, but actually has well-rooted human behavioral causes.

Late in the book, Ariely writes: “Behavioral economists… believe that people are susceptible to irrelevant influences from their immediate environment…, irrelevant emotions, shortsightedness, and other forms of irrationality.” Though this makes a decent definition of his field, it sounds harsh and judgemental, which this book mostly isn’t. Unlike standard economics, which literally assumes humans are money-driven reason machines, Ariely sees human behavior as driven by forces we cannot see.

However, these invisible forces, unlike the fabled “invisible hand,” actually have measurable traits. For instance, consider volunteer activities. If Habitat For Humanity needed to pay its workers the going rate for construction labor, it couldn’t afford to build homes for the destitute. Why will people people donate freely time and labor they’d charge dearly for if money became involved? Because society is bound together by forces economics cannot value monetarily.

Likewise, given complete impunity, most people will cheat slightly to pursue their own advantage. But most people will cheat far less than they possibly could. What forces keep chiseling to a reasonable minimum? Apparently we have complex neurological structures that let us monitor ourselves, asking whether we’re upholding our own basic judgments. Our brains literally stop healthy people from swindling others. Honesty isn’t merely a morality, it’s a neural imperative.

Ariely demonstrates we could prevent even limited cheating with simple steps. Honesty oaths and honor pledges work effectively, as do simple reminders of moral codes like the Ten Commandments. We can also minimize cheating by keeping consequences close-by and visible, as by transacting business in cash, not credit. The bankers who imploded the economy shortly after this book appeared probably wreaked havoc because, psychologically, they were handling Monopoly money.

Through-lines develop across Ariely’s chapters, without his need to notice. We don’t cheat profligately, and moral nudges halt even minimal cheating, because social standards are based upon trust. Economies where trust runs high, like America, thrive because we’ll keep money flowing, trusting few people will deceive. Economies with limited trust, like Iran, struggle with minimal growth. But it takes remarkably little to undermine trust, and when it’s gone, it’s gone.

These examples aren’t thought experiments or mathematical models. Ariely draws conclusions based on experiments in the laboratory and the field. Some are only possible now because of advancing technology—in one example, a colleague replicates the famous Pepsi Challenge with subjects strapped into an fMRI machine. Others involve simple field tests anyone could replicate by offering free chocolate or beer. But they’re all based on real-life trials and empirical data.

In consequence, these discoveries challenge both the traditional Left and Right in American politics. Because people aren’t theory machines, prefab theories cannot encompass our choices: we’re driven neither by profit, as neoclassical economics insists, nor by the class-based identity Marxism demands. Our motives defy standard categorization, threaten anyone who’d predict or control our choices, and expand regular citizens’ views of themselves and their choices.

Ariely’s experiments make humans more, not less, complex. They demonstrate we’re ore powerful and sophisticated than even we ourselves realize. But our complexity also makes us vulnerable to forces we cannot see externally. Behavioral Economics makes humans both more and less reasonable, both more and less predictable. And in so doing, arguably, it makes us more human, overthrowing the theories which bind us.
7 of 7 people found the following review helpful
5.0 out of 5 stars Read this book if you really want to figure out why people wind up doing things the way they do 4 December 2016
By Studying llfe in New York - Published on
Format: Kindle Edition Verified Purchase
Not sure why I wanted to read this book other than the fact that Dan has some hilarious videos out there, that are equally intriguing in their implications. This book felt very much like the Dan from the videos. I feel like I learned a lot about humanity namely that we can observe people making the same mistakes repeatedly, but we can interject the lessons we glean to change outcomes for the better- like improve people's honesty or make better financial decisions. Wish more people would read this book and heed his advice- perhaps we all would be a lot happier with society as a whole- and with ourselves! It should be required reading for parents, school administrators and students before graduating (high school and college). It definitely turns traditional economics on its head.
5 of 5 people found the following review helpful
3.0 out of 5 stars Good for the Anecdotes 8 March 2017
By Allan M. Lees - Published on
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Among the various books available that cover the topic of human behavior, Predictably Irrational is among the top ten (interested readers should also read Sway by Rom Brafman). It's not quite an economics book (for a much better analysis of the many failings of neoclassical economics, read Debunking Economics by Keen) and it's not quite a behavioral psychology book (read Sway) so it falls somewhere in the middle - and therein lies its main weakness.

There are some very interesting anecdotes (for example, do you know why we think black pearls are valuable when originally no one wanted to buy them at any price?) and these are where most of the book's value lies.

The principal weakness comes from Ariely's conclusions based on the work he's carried out. He acknowledges that we humans are "irrational" compared to the straw man of the "rational optimizer" beloved of neoclassical economic theory, but while some of his examples are interesting he fails to see the entire picture. Thus whereas Keen shows that the neoclassical model is computationally impossible, Ariely merely shows that we have different decision-making processes in two distinct contexts: interpersonal and financial. This is valid, but Ariely then goes on to show that he hasn't really explored the interpersonal context with any degree of rigor.

A couple of examples will illustrate what I mean. In the first example Ariely talks about how companies strive to create a "social exchange" in the workplace because people generally work harder and more diligently in social exchange settings than in compensation-based settings. We can think of how we might keep on struggling to get a friend's piano up the stairs of a narrow apartment building long after we'd have given up if we were simply being paid $10 per hour by a stranger to perform the same task. So Ariely notes that companies try to exploit our social side in order to get more work out of us (he doesn't look at the ethics of this attempt, or even at its many infeasibilities). Then he suggests that in order to reinforce the social dynamic and avoid corrupting it with the financial dynamic (because it's not possible to combine the two) companies should not give bonuses but instead should send employees off on a paid-for vacation. The problem, of course, is that most employees don't want to be placed in a parent-child relationship. Most employees think of themselves as independent adults. Saying "here's a vacation we've arranged for you" violates an employee's independence. Worse still it assumes the employee's plans for their free time are irrelevant (the cost of leaving one's home, family, and friends for the duration of the enforced vacation are apparently zero where the company is concerned...). Obviously this recommendation would be disastrous under real-world conditions and one wonders how Ariely failed to think through his proposal.

A second example of this failure to think things through comes with Ariely's analysis of cap-and-trade. Rightly he points out that when you set a price on something (in this case pollution) then people may elect to pay more in order to get more. Just as we might only take a single candy from a tray being passed around the group but might buy ten if the candies are being sold, so too might companies pollute less if pollution were a "social good" rather than a priced good. With cap-and-trade companies might simply elect to pay more in order to feel free to pollute more. So Ariely proposes making pollution a "social good." But again a moment's thought shows this to be absurd. Not only do we have far too many examples of companies being quite happy to pollute when it's a cost-free exercise, Ariely's own book shows that executives will ignore social factors when their focus in on financial rewards. As executives are almost exclusively motivated by fat financial rewards, the notion that they would take social norms into account when deciding whether or not (or how much) to pollute is like saying that investment bankers would put the needs of their clients and the financial system in general ahead of their own desire for the $100 million bonus they get from pushing CDOs onto unsuspecting dupes.

So in the end the book is worth reading for its anecdotal value but not for Ariely's own conclusions or policy suggestions. He's not-quite an economist and not-quite a behavioral psychologist and ultimately that means he's not-quite useful as a guide to policy formulation on either the micro or the macro scales.
6 of 6 people found the following review helpful
4.0 out of 5 stars Its all in the mind 5 May 2015
By Harish Nair - Published on
Format: Kindle Edition Verified Purchase
Alas, I read “Thinking, Fast and Slow (TFS)” before I read this book. So, a lot of stuff in this seemed to be a repetition.

So, how is this different from TFS. While both the books are on the subject of Behavioral Economics, hower, Dan has kept the topics brief and discussions to the point, so that the interest is sustained. While he would have conducted innumerable number of experiments in course of the research, he has only referred to a select few in this book. And whatever his criteria for selection was, it was pretty good, as it kept the interest of the readers on. I would prefer it over TFS

A brief overview of the interesting concepts in this book, which can of good use in product and pricing decisions are:
Relativity – to make a line look smaller (or a product affordable), draw a bigger line next to it (or a more expensive model). You need not really put an effort to sell the expensive model, but it gives a relative idea. The important thing is that the products should be comparable, as human mind cannot function with incomparables.

Anchoring – Daniel had labored on this a lot in his book TFS. For a consumer to make a purchase, an appropriate anchor is important, which could be even the MRP. So, low MRP does not necessarily help to sell. The interesting revelation was that “ our first decisions resonate over a long sequence of decisions”!! So, get the customer first. Of course, one can de-anchor (don’t know if there is a word like that), for which uncomparable variants need to be introduced (Starbucks case ) and for which its own MRP becomes the anchor

Reaction to price changes : It lasts only as long as the memory of the old price persists, demand soon normalizes

Zero cost : Free is a powerful tool, although expensive to the consumer ( Woody Allens quote that “The most expensive sex is free sex” is so apt, although that was quoted more from the social norms context). So, make the consumers buy something for nothing. Add freebies for upselling, nothing much new about it. But using FREE! to drive social policies is interesting.

Social norms : Very powerful, but cuts both ways. Once a social norm it established, bringing in market norm will destroy it forever (the example of late pickup being charged at day care is a perfect example). Keep sending small gifts to the customer , they will yield good returns.

Influence of arousal : Frankly, not of much use in commercial, but was quite astounded to read and the experiment was an eye opener.

Price of ownership or endowment effect: Giving an option of refund if not satisfied is a very powerful hook in durable segment, as the endowment effect generally inhibits any urge to return.
Keeping doors open : This concept is quite detailed out in the book Paradox of Choice by Barry Schwartz. Too many options only destroy value

Effect of expectation and power of price : When we believe something beforehand that something will be good, it generally will be good an vice versa. So, manage your customer expectation. A high price only enhances the expectation

The continuum message is that human beings are mere pawns in a game whose forces they largely fail to comprehend. And that is where behavioral economics will be a strong feed into marketing – making sure that consumers make the right choice!!
1 of 1 people found the following review helpful
4.0 out of 5 stars Interesting, but unsurprising, insights into the workings of many minds 6 January 2017
By Amazon Customer - Published on
Format: Kindle Edition Verified Purchase
As the title of this post suggests, I found many of the insights of this book to be interesting but unsurprising.

The thesis of this book is that people frequently make decisions that are not economically rational. That is, they do not follow the assumed definition of classical economics. Instead, they follow rules that are driven by our emotional or psychological states, leading to irrational decisions. Further, these irrational decisions are regular and therefore predictable. Studying these irrationalities gives us the opportunity to redefine economics (towards behavioral economics) to better understand the real world as well as see such behaviors in ourselves to make changes in our own decision making.

In many ways, this book is a slightly more academic version of Freakonomics. This comes with the advantage that the experiments are simpler / more transparent, but the drawback that the insights are less surprising, less directly applicable, and more likely to be skewed by the research participants (mostly US college students). While being more academic is not bad in and of itself, in this case, it is not a good thing.

That said, it is still worth reading, if only to gain an understanding of how we are affected by "free" stuff.