I recently finished Predictably Irrational: The Hidden Forces That Shape Our Decisions, by MIT behavioral economist Dan Ariely. The main premise is that while economists like to think that people behave rationally, we don’t, and Ariely’s book is full of examples and studies to prove it.
I thought it was a pretty interesting read, especially as someone who considers himself rational and analytical. In one chapter, Ariely describes the power of relativity. If we make a million dollars a year but all our neighbors make two million, we still feel poor. Shoppers selecting a $20 book will probably drive a couple miles to another book store if the same book is on sale for $10. But put them at Best Buy shopping for a $1000 TV, and the same customer is unlikely to drive a couple miles to Wal Mart to get the same TV for $990. In the first example, they’ve already shown their time and mileage is worth $10. Why should it be any different for a bigger purchase? $10 is still $10.
Another interesting chapters was on the power of placebos. During a couple studies, patients underwent fake surgeries and reported the same health improvements as patients who received the real procedures. I guess the results turned out the same, but what hospitals were doing these fake surgeries?! There was a similar section about the price of medicine, and how an inexpensive Advil might be ineffective on a headache, but a fancy and expensive designer drug with the same ibuprofen ingredient works wonders. Ariely made an interesting connection here about health care reform. Since the cost of treatment clearly plays a role in how a patient feels, what will happen if it becomes “free” or available at reduced cost?
Ariely also covers a variety of other topics including students cheating, social norms vs. market norms, the power of priming, the influence of our emotions, and more. The storytelling isn’t quite up to Gladwell or Levitt standards, but it’s a quick read with some unexpected insights. The moral is that once we learn about our predictably irrational behaviors, we can take steps to improve them and make better decisions and live a happier life.
FTC Disclosure: If you buy Predictably Irrational through the above link, Amazon will pay me 4% of the purchase price.
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Tags: economics
