The Daily Bongo
by Dan Ariely
I am a subscriber to the Skepticality podcast. It presents a skeptic's view of science. The parent company that products Skepticality also publishes Skeptic magazine. A few weeks ago, the hosts had Dan Ariely on the show. Ariely specializes in psychology and behavioral economics. He worked at MIT, but currently works out of Duke University. Ariely has two books out about how people act irrationally without realizing. The first book, Predictably Irrational, explains some of his research findings. I just finished reading it, and boy, was it an eye opener! You may not realize how you act irrationally in most situations. I've always thought of myself as a rational being; I like facts and figures and want the scientific explanation for things. However, even I am swayed by FREE!. Ariely gave the example of Amazon's offer of free shipping if you spent over $25. What did people do? We bought something that was just under $25. Did we just do the rational thing and pay for the shipping? No! We continued to tack on items to get us over the $25 mark so we can get free shipping. Of course, we wind up spending $30 dollars, just so we can save the $3 shipping fee. Did we need or want the items that we bought? Probably not. We just got them so we could get FREE! shipping. Ariely describes several of his research projects that illustrate just how predictably irrational we are.
Ariely mentioned several interesting topics. He talked about the -object effect. People want something to compare things too before they make a decision. For example, if a realtor takes you to see three houses, he may show you a contemporary, a colonial (that needs a roof repair), and a colonial (needing no repairs). The colonial needing a repair is the -colonial. What people do is compare the two colonials (-colonial and colonial) and decide the one without repairs (colonial) is better. The irrational things is that we also tend to think that the colonial is also better than the contemporary, just because we were able to do the comparison. It also works for good looking women who take their uglier friends with them when they go out looking for men. Other topics:
- Supply and demand - unfortunately, the supply doesn't always work with demand. When we have gas price increases, we lower our demand, but when the price doesn't drop, we eventually become accustomed to the price and increase use.
- Social norms - you will do something for someone as a favor, but when a price is attached to the work, you won't do it. Lawyers will volunteer their time for free, but if you ask them to give discounted services, they will more than likely turn you down. If they are doing things for money, they want their full salary.
- Procrastination - we put off until tomorrow, even when we know that there are there are disadvantages. In fact, in one of Ariely's classes, he set no deadline. Students just had to turn in the work by the end of the term. That class did worse grade-wise than the classes with rigid deadlines or self imposed deadlines.
- Keeping doors open - we tend to not want to give up one something even while we investigate other options. So we are reluctant to give up on an old boyfriend even when it might mean losing the current boyfriend.
- Expectations - we tend to judge things based on our expectattions. We choose Coke over Pepsi when we can see the cans. We choose Pepsi over Coke in a blind test. Seeing the familiar Coke can, we have expectations on taste and what we favor.
- Cost of items - if an aspirin costs $2.50, we tend to think that it is more effective than the exact same apirin for $.10. We experience the placebo effect to account for what we think the result should be.
That's just a sample of the items in the book. Ariely gives lots of examples of the research he performed to find out how people really act. And it turns out that we don't make rational choices. In fact, we are predictably irrational. Ariely admits that even he acts irrationally. He knows that he's not acting rationally. As Ariely says, he hopes that people who read his book think about the situations. Once you are armed with facts, hopefully, you can act more rationally.
I loved the book. Ariely writes in a way that makes his research and analysis accessible to the general audience. I don't like business topics, but I loved reading the book and learning about how businesses and marketers take advantage of our irrationality. You would be hard pressed to read the book and NOT be influenced by it. I know that I plan on thinking about my motives before I do things. I do not want to be predictably irrational.
March 30, 2011