Dan Ariely, an economist at M.I.T., tells us that “life with fewer market norms and more social norms would be more satisfying, creative, fulfilling and fun.” Ariely, then, sets himself the formidable task of conveying to readers how our typical behavior is different from market norms, why we should care, and how the information might be helpful to us. Books about neoclassical economics are not typically best-sellers – even in the hands of exceptional writers such as Peter Bernstein and Robert Heilbroner – but Ariely specializes in behavioral economics, a new road that considers choice by humans rather than utility maximizing points on a graph. Ariely’s personal, raconteur style of writing makes Predictably Irrational a captivating and edifying read.
Dan Ariely is a researcher who has participated or led many interesting experiments. The experiments test whether we exhibit different versions of ourselves under different circumstances, something we know to be true anecdotally from experience, but which becomes fascinating when relayed to us as part of a structured test. Rest assured, despite our intuition and experience with our own lives, some of the outcomes will surprise.
For example, the author tests the foundation of neoclassical markets – that “consumers’ willingness to pay is one of the two inputs that determine market prices” (demand), and via his experiments demonstrates that “what consumers are willing to pay can easily be manipulated, [which] … means that consumers don’t in fact have a good handle on their own preferences and the prices they are willing to pay for different goods and experiences.” So much for the static, intersecting lines of supply and demand curves.
In another test of pricing, Ariely asks “if we want the best for ourselves, does an expensive drug make us feel better than a cheaper drug? Does cost really make a difference in how we feel?” His results show that “the students who drank the higher-priced beverage reported less fatigue than those who had the discounted drink.”
In an example most of us can related to, Ariely cited an advertisement by the Economist magazine which offered subscribers three options: an internet subscription for $59; a print-only subscription for $125; or a combined internet and print subscription for $125. Because consumers benchmark their choices and make relative comparisons, options were designed to push people to take the best ‘deal’ (the print-and-Internet option for $125), thereby maximizing revenue for the publisher.
Noting the famous animal behavior experiments in which hatchling geese were imprinted to think of a researcher as their ‘mother’, Ariely wondered if the human brain is wired like that of a gosling, and if so, how this human imprinting plays out in our lives? “When we encounter a new product, for instance, do we accept the first price that comes before our eyes? And more importantly, does that price (which in academic lingo we call an anchor) have a long-term effect on our willingness to pay for the product from then on?” Once again the author relates various experiments to demonstrate his point.
Throughout his book, the various experiments are described in fascinating detail by Ariely, and both the experimental design and the outcomes leave us to ponder the ways in which we are manipulated within markets to feel good about suboptimal outcomes. Ariely concludes, “as our experiments demonstrate, what consumers are willing to pay can easily be manipulated, and this means that consumers don’t in fact have a good handle on their own preferences and the prices they are willing to pay for different goods and experiences.” The book helps answer practical questions such as why “the seller of a house usually value[s] that property more than the potential buyer … [and why] the seller of an automobile envision[s] a higher price than the buyer.”
One note of caution about the book, though. Ariely has a decidedly male point of view in both his anecdotes and his experiments, and though it is just over a decade since its publication its tone is already noticeably out of step. Nonetheless, an interesting and helpful contribution to the growing behavioral finance canon. Readers should take this road; it will make all the difference.
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With everything you do, in fact, you should train yourself to question your repeated behaviors.Highlighted by 5,019 Kindle readers- Because once market norms enter our considerations, the social norms depart.Highlighted by 4,250 Kindle readers
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It was completely wet under the rain and the corner of the book completely damaged and wrinkled. Super dissatisfied of the delivery quality.
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Top reviews from other countries
Alok Kejriwal
Just get this book. That's it.
Reviewed in India 🇮🇳 on August 11, 2019Verified Purchase
Alok Kejriwal
Reviewed in India 🇮🇳 on August 11, 2019
GET THIS BOOK. That's it.
A BRILLIANT read. Irrespective of what you do, you must read this textbook of human behaviour & how amazingly complex our minds are decisions are.
A sample of what's inside:
Consider an experiment on 100 students based on an old subscription model of The Economist magazine, offering:
Option 1 - a web subscription for $59
Option 2 - a print subscription for $125
Option 3 - a web & print subscription for $125
16 students chose Option 1
0 students chose Option 2 (obvious!!)
84 students chose Option 3.
Revenue earned = $11,444.
The author then removed Option 2 (Print sub for $125) Results:
68 students chose Option 1
32 students went for Option 3Revenue earned = $8,012
What could have possibly changed their minds? It was the mere presence of THE DECOY (2nd option) that made them buy MORE expensive options in the 1st experiment & less in the 2nd experiment.
The book is replete with such experiments. Also, real-life examples of human behaviour when it comes to product pricing (including 'anchoring'), buying houses, cheating, Starbucks Upsells, what Ford learned from Toyota about Car servicing and too many brilliant quotes.
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Susan Stepney
Several of the examples will be useful to help avoid faulty reasoning in certain cases
Reviewed in the United Kingdom 🇬🇧 on January 1, 2019Verified Purchase
Nick Michelioudakis
A Review - for Educators
Reviewed in the United Kingdom 🇬🇧 on July 14, 2016Verified Purchase
Nick Michelioudakis
Reviewed in the United Kingdom 🇬🇧 on July 14, 2016
In one of the amazing studies in the book he shows for instance that the way we ‘frame’ something (p. 41) often determines how others are going to take it (remember Tom Sawyer and how he got his friends to paint that wall? For classroom management purposes, this is crucial; if we introduce activities saying ‘Now, this may hurt a little...’ chances are students are going to feel the pain!)
This leads to the hugely important subject – expectations: quick Q: would you like a beer with a drop of balsamic vinegar in it? (p. 159) A: It depends on whether you know it in advance or not! If you do, chances are you are going to dislike it. Expectations colour perceptions. How many times has this prejudiced us against certain students?
Ariely’s interests range from beverages to education. Here is another Q for you: which students have better results: those who are free to choose their own deadlines, or those where the professor ‘democratically’ decides for everyone? Incredibly, it is the latter! (p. 115) This finding may go against our cherished beliefs, but in fact it ties in very smoothly with notions of ‘ego depletion’ (Baumeister). The very process of deciding exhausts us, with the result that we are both more stressed and produce poorer-quality work.
Ariely writes in the simple, effortless and straightforward style that you find among people with a real command of their subject. Rather than bombarding the reader with studies and facts, he goes through each experiment in detail, ensuring that the reader manages to grasp the key concept in all its fine details. He then goes on to consider the possible applications of the findings in various fields of life – not just work. Yet what I like best about this book is that he also uses examples from his own life – sometimes funny, sometimes poignant.
OK – now here is one last idea from the book: a little ‘conjuring trick’ for shamelessly manipulating students (pp 9 – 10): You give them a choice for homework: they can read a long article or they can write a short essay. But you really want them to write that essay. Piece of cake – you give them a third option; writing an even longer text! Now, nobody is going to choose that, right? Yes, but because the short essay is better than the long one, students also assume it’s preferable to the article too! Brilliant!! :-)
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Tony James Slater
Brain-exploding potential!
Reviewed in the United Kingdom 🇬🇧 on July 17, 2015Verified Purchase
Adrian Haberberg
A good book, but there are better ones out there
Reviewed in the United Kingdom 🇬🇧 on September 18, 2018Verified Purchase
