Predictably Irrational

Predictably Irrational

Even though I had created a tumblr account promptly after Yahoo acquired it in June 2011, I had done nothing much about it since. This is clearly nothing new, I have always basked in the glory of total laziness and procrastination. In fact, one could even argue that I had become completely predictable to be that, however irrational that is. And so, when I just finished this amazing book by Dan Ariely, I thought this was a wonderful option to open the account, as we say in Cricket parlance.
Predictably Irrational is an extremely well written book in the same genre of Freakonomics and even some Gladwell books, but what provides authenticity and genuineness to this compilation is that these are based on experiments conducted by the author (and his collaborators) himself, not relying on some possibly dubitable study or observations.

The basic premise of this book is that we, as humans, are not as rational as we would love to believe. And to make things more interesting, we are actually pretty predictable in our irrational behavior.  There are 15 chapters in the book and each showcases our irrationality under different circumstances.

The first chapter of this book reads “The truth about relativity”. The summary of this chapter is that, we as humans often like to judge items relatively to other items, but not on their absolute sense. We also would like to avoid comparing items that are dissimilar. Combining these two observations, it is possible to manipulate our eventual choice by providing carefully selected options. For example, if two objects A and B compare equally on some attributes, but are different to each other, it becomes difficult for us to choose one over the other. However, the introduction of a new decoy, A- which is inferior to A tilts the balance in favor of A. We clearly perceive A to be a superior choice to A-, but we also irrationally choose A over B. The author suggests that we break the cycle of relativity to overcome this issue.

The second chapter questions the conventional wisdom regarding the “demand and supply” theory. Here the theory is that the price stabilizes where the price lines between the supplier and consumer intersect. But what is missing is that, often, consumers do not know the value of products. The authors premise is that this price is usually based on an anchor price that most suppliers intelligently manipulate. The author gives an example of the Tahitian pearl, a rather unknown entity. While initially the sellers of this pearl struggle to get any meaningful price for the same, they later project it with other exotic gems like diamond thereby creating a perception that this belongs to the same league. Such irrational pricing is not really an exception, but is more of the norm.

The third chapter talks about how humans start behaving irrationally when something is offered for zero cost. I could personally identify myself with this irrational behavior and it is likely that I would have behaved exactly the same as the majority of the experiment subjects did. The premise here is that, when some item is offered for free, some thing triggers our feelings to go for it straight away. The author gives an example of how he offered two kinds of chocolates — truffles for 15c (market value is about thrice the cost) and kisses for 1c (market value is about twice the cost). In this set up, majority of people chose the truffles and it appears obvious. However, the magic happens when he reduced the price for both by 1c. The truffles were given at 14c (still a steal, given its market value) and the kisses free. In this case, the majority of people chose kisses, which on pure economic terms, does not make any sense at all. But somehow, the word free appears to be magical in triggering irrationality. The free does not necessarily apply only to monetary things, but also to things like time — people stand in long queues to get in on a free day at museums where the cost of the spent time is usually way more than the entrance fee.

The next couple of chapters talk about the cost of social norms. People tend to behave differently when operating in a social setup to that in a professional setup. And when the two mix, things get really messed up. For example, if lawyers are asked to represent some old aged people for free, they willingly do it. But if they are asked to do it for a discount, most of them do not sign up. He concludes the chapter by saying that it is much more easier to use social norms to motivate people than by using money as the force of attraction.

The rest of the chapters also bring about other interesting subjects, but  one of them really stood out for me. This is the fact that people reside in two states (Jekyll and Hyde, if you may) and that they act cool and think calmly when in the Jekyll state, but once they get the Hyde state, it is a different mind that takes over. In the cool state is when people make  new year resolutions, take high moral ground, etc. However, in the hot state, they give in to immediate gratification and lose all sense of control. The author goes on to say that with penalties and deadlines, it is possible to get some control over the hot state. 

In summary, “Predictably Irrational” is a book that not only is an easy read, but is a book that is guaranteed to make you think when you are reading it and mostly likely even after that.

[Note: Moving this post from my Tumblr for consolidation]