Predictably Irrational
By Dan ArielyTable of ContentsThe Truth About Relativity - The Decoy Effect
The Cost of Social Norms
The Power of a Free Cookie
Influence of Arousal
The Problem with Procrastination and Self Control
The High Price of Ownership
The Effect of Expectations
The Power of Price
The Cycle of Distrust
The Truth About Relativity - The Decoy Effect
- Relative Value: The relative value of different options disproportionately impacts our decision making.
- Example: Deciding between a trip to Rome and Paris. Add options: Paris with free breakfast, Rome without free breakfast, and Rome with free breakfast. Rome with free breakfast becomes most appealing.
- Insight: Comparing options this way irrationally makes Rome with free breakfast the most desirable choice.
The Cost of Social Norms
- Lawyers’ Response: Ask lawyers to work for retirees at $30/hour, they say no. Ask if they’d do it for free, they’re more likely to agree.
- Dinner Date: Never mention the price of the meal to avoid shifting from social norms to market norms.
The Power of a Free Cookie
- Pollution Control: Charging companies based on pollution level might backfire. Instead, tie pollution levels to products, like nutrition facts on food.
Influence of Arousal
- Behavior Prediction: People can’t predict how arousal changes their behavior.
- Driving Study: Teenage driver alone has a 40% higher accident risk than an adult. Risk doubles with each additional teen in the car.
The Problem with Procrastination and Self Control
- Business Idea: Self-Control Credit Card - alerts you when nearing or exceeding spending limits for different categories.
The High Price of Ownership
- Valuation Bias: People overvalue what they own.
- Study Example: Duke students with basketball game tickets wouldn’t sell for less than $2400, while those without tickets would pay only $170.
- 30-Day Guarantee: People value a product more after 30 days, making money-back guarantees less appealing.
The Effect of Expectations
- Expectations vs. Reality: High expectations can lead to disappointment.
- Restaurant Scenario: A hyped restaurant is less enjoyable than one with no prior expectations.
- Movie Experience: Over-hyped movies often disappoint in theaters.
Stereotypes
- Impact of Stereotypes: Stereotypes affect performance based on the priming of identity.
- Study on Asian Women: Better performance in math when primed with race rather than gender.
- Elderly Study: Primed with age-related words, elderly people walked more slowly.
The Power of Price
- Perceived Value: Medication purchased at full price resulted in better reported health outcomes than those bought on sale.
- Sports Drink Experiment: Full-price buyers felt less fatigued than those who paid a reduced price.
The Cycle of Distrust
- Advertisement Skepticism: People distrust ads.
- Stereo System Study: Higher ratings for stereo systems advertised in a third-party brochure compared to a store-produced brochure.