Saturday, July 2, 2016

"Predictably Irrational" by Dan Ariely

Predictably Irrational by Dan Ariely rating: 4.09
my verdict: super-fun reading

pro: interesting facts, funny experiments, great style
con: nothing

It is known that we human are irrational. But the author says that our irrational behaviors are predictable. Therefore, we can predict our irrational tendency and choose to fix it if needs be.

In this fun book, Dan Ariely shows how we human beings behave in irrational, but predictable ways, by showing the results of his and other people's funny experiments. In many experiments, Dan himself carried out the experiments. For example, it was Dan who put the 6-pack cokes in the fridge to gauge their half-life. And it was also he who got beer orders in a restaurant when people tried to look unique just for the sake of it.

Most of all, I liked his style. He is not verbose at all, but he puts a few extra words to describe how irrationally people behave, which make you laugh out loud.

I would like to give this book 4.5 stars. But again, a few hearty laughs are worth more than half a star.

What follows are summaries of of each chapter, more or less for my personal record.

Chapter 1 - The Truth about Relativity
Two choices are juxtaposed and we don't know which to choose. It is like, A is better than B in one trait, but in the other trait, B is better. Overall score looks similar. In this picture, a marketing guru comes in and puts another choice, namely, A-, which is overall similar to A, but a little bit (but noticeably) inferior to A. Then everyone rushes to A. With the backdrop of the inferior counterfeit, A suddenly looks better than not only A, but B. His episode with the Economist subscription tells the story in a succinct and clear way.

Chapter 2 - The Fallacy of Supply and Demand
Price is not determined by supply and demand. Price is heavily influenced by the initial anchor! Given the same task, people who were suggested 90 cents bid higher wages than those who were suggested 10 cents. MSRP is designed to be the anchor for our willingness to pay.

Chapter 3 - The Cost of Zero Cost
Zero cost rushes you to make choices you won't make otherwise. The author believes this is because of we human beings' deeply rooted fear about loss. When something cost you nothing, you don't see the downside of the interaction, and there it goes. But marketers know this well, and make you spend even more by giving you something for free. The Lindt vs. Kiss experiment shows this well. (By the way, in Switzerland Lindt is a cheap low-quality chocolate and is dirt cheap!)

Chapter 4 - The Cost of Social Norms
People are willing to do things either when they are paid reasonably, or when they do it in the context of social relations. When they are paid inadequately, they won't do it. Your lawyer friend might pick up a parcel for you in return for a candy bar, but won't fill your legal form for the same candy bar! The even more important lesson from this chapter is, that a social norm relation can really quickly easily turn into a market norm, and that once deteriorated into a market norm, the social norm won't return easily. A bank might be able to cuddle a customer with simple gifts and free services, so that he feels he and the bank are in a social norm. Let's say, the customer fails to pay his due once, and the bank makes him pay the penalty according to the account contract. Now the relation plummets into a market norm, and will hardly ever return. So, corporations, if you want to make customers feel like they are at home with your services, choose wisely when to apply the market economics.

Chapter 5 - The Influence of Arousal
Dr. Jekyll believes that he can control the dark Mr. Hyde. But no. Hot is actually hotter than we think. When hot, we cannot control ourselves and make lousy and dangerous decisions. Don't you affirm that you will be different.

Chapter 6 - The Problem of Procrastination and Self-Control
We perform best when we are dictated to do things. The report deadline experiment shows this so crisply well we can't deny it. So, if we are fined when we skip our routine cholesterol check, general health level of the country will enhance. What I liked in this chapter is the author's meeting with the bankers, marketing a self-control credit card. While the bank will lose some $17 billion in interest charges, it will stand out among the crowd as the good bank. But the bank never called back. Perhaps they decided to choose the interest charges over the good bank image. Or perhaps they just procrastinated. ;)

Chapter 7 - The High Price of Ownership
We price what we have simply because we have it. We are emotionally attached, and we focus more on what we lose than what we gain. The IKEA effect (TM) says that the more labor and efforts you put in, the more you value it. Furthermore, we assume ownership even before we actually have it. So, 30-day money back guarantee works. When the deadline approaches, your loss of what you already have looks much bigger than the meager cash payment you will receive in return.

Chapter 8 - Keeping Doors Open
Even smart people make bad choices just to have more options. So, parents teach their kids all kinds of things - foreign language, piano, painting, and Taekwondo - just to keep the doors open.

Chapter 9 - The Effect of Expectation
The well-know effect of expectation on actual outcomes. The example is about the famous Pepsi blind test. When people are told that they will drink Coke, a part of the brain activates, and they come to believe that they are drinking Coke, their favorite brand. Asian girls will score higher in math when they are (secretively) reminded that they are Asian, but they will score lower when they are reminded of their gender. Their performance actually follow the popular myth - an expectation.

Chapter 10 - The Power of Price
Continuing from the previous theme, the expectation effect, this chapter talks about the Placebo effect. A 50-cent drug can do things that a 1-cent drug can't.

Chapter 11&12 - The Context of Our Character
Again, the priming effect. Primed by reminding oneself of the Ten Commandments, people cheat less. We feel stealing money much more uncomfortable than stealing a can of coke. As we get further away from "money", such as a token or a stock option, less qualm we feel.

Chapter 13 - Beer and Free Lunches
When ordering in a restaurant, people tend to order different dishes when they are heard. On the other hand, when they can order in writing, they order what they want. So, be the first one to order in restaurants, or talk about what you will order before the waiter arrives. Behavioral economics do not presume rational human behavior, instead, it observes how they behave. In behavioral economics, because things are not perfectly organized, so you might be able to find a loose spot and earn some free lunches.

No comments:

Post a Comment