Reality is absolutely relative.
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At first glance, the title of Dan Ariely's book seems to be an oxymoron. (It certainly catches one's attention.) Can irrational thought and/or behavior be predicted? Perhaps if it is repetitive? (The judgment and behavior of at least some people can be repetitive and thus predictable.) So I began to read his book with curiosity but also, yes, with some skepticism. Here are a few of my reactions. First, he learned a number of "lessons" from what he calls "experiments" in his life, each of which struck him as being counterintuitive. For example, everything is relative...even when "it shouldn't be"...or in fact isn't. That is, our mind can "play tricks" on us and thus we tend to see what we expect to see, hear what we expect to hear, etc. Images and sounds are relative to their context or frame-of-reference within which we place it. Or consider the frequently expressed observation, "one man's trash is another man's treasure" or one or more of self-serving juxtapositions such as "He's a tightwad whereas I'm frugal...she's narrow-minded whereas I'm a specialist...They're stubborn whereas I stick to my convictions." Ariely's other lessons also, directly or indirectly, involve illusions and delusions of one kind or another. They explain why we can't make ourselves do what we want to do, why we overvalue what we have and especially what we purchase, and "why a 50-cent aspirin can do what a penny aspirin can't."
As I worked my way through the first few chapters, I was reminded of a joke I heard years ago. This fellow arrived just in time to tee off for another round of golf with three friends. They played every Saturday morning. "Hey, I've got great news! Just bought the best hearing aids that money can buy. They cost $8,000 each but they're worth every penny. It's a whole new life for me. Never been happier." "You spent $16,000 on two hearing aids? That seems expensive." "Nah, like I said, worth every penny." "What kind is it?".... The fellow glanced at his watch. "Exactly 7:30."To paraphrase Descartes: It is if I think it is.
Also, Ariely shares what he learned about the differences between conventional economics and behavioral economics. Contrary to "the far-reaching conclusions" that generations of economists have developed "about everything from taxation and health-care policies to the pricing of goods and services," asserts that human beings are far less rational than standard economic theory assumes. "Moreover, these irrational behaviors of ours are neither random nor senseless. They are systematic, and since we repeat them again and again, they are predictable." (Hence this book's title.) Ariely makes a convincing, at times humorous but nonetheless rational argument to support modification of standard economics, "to move it away from naive psychology (which often fails the tests of reason, introspection, and most important - empirical scrutiny)." He collaborated with a number of colleagues when conducting various experiments that enabled them to "slow human behavior to a frame-by-frame narration of events, isolate individual forces, and examine those forces carefully and in detail." The results of the experiments illustrate general principles of human behavior (e.g. the decision-making process) within and beyond the workplace.
Finally, I admire the extent to which Ariely succeeds in explaining the fundamentals of economics and social science for a reader such as I who knows essentially nothing about either. (Oh sure, I have some scraps of information and countless opinions but....) For example, in Chapter 9, Ariely describes an experiment that he conducted with two MIT professors to answer questions that include "How to explain violence? Why does it happen? Is it an outcome of history, or race, or politics - or is there something fundamentally irrational in us that encourages conflict, that causes us to look at the same event and, depending on our point of view, see it in totally different terms...We came up with a simple test - one in which we would not use religion, politics, or even sports as the indicator. We would use glasses of beer."(I do have extensive prior experience with beer!) The details of this experiment are best revealed within the narrative but I will indicate that the material in this chapter provides a number of revelations that help to explain "the hidden forces that shape our decisions."
Congratulations to Dan Ariely on a brilliant achievement!
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People Are Predictably Interested In More Than Money
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Only a professor of behavioral economics would conclude that when people respond to motives other than money they are being predictably irrational. If you want to see some clever experiments that demonstrate that people are interested in things other than money, read this book.
I would like to observe, however, that such experiments have to be taken with a grain of salt when people know that they are experiments or reflect unexpected questions rather than serious looks at on-going behavior in areas where people have a lot of experience. For instance, the book looks at whether and at what price Duke students will sell basketball tickets they have just put a lot of effort into getting. Clearly, there are factors other than profit that motivated the buying in the first place. Most students probably wanted to get lucky and go to the game. Selling a ticket under these circumstances denies the opportunity to go to the game. A ticket broker would make a rational decision about whether to hire students to try get a ticket this way, but a student who does this a few times wouldn't. Study the ticket broker and you'll get more economic behavior. Study the student who wants to go the game and you won't. So why should we be surprised?
I remember being a subject of a lot of these experiments as a student. If the experiment struck me as particularly stupid, I would often feel rebellious and do things to act in noneconomic ways just to prove I was a person. I didn't see that effects like those are being studied here.
If you want to learn about human behavior, I suggest you study all of the motives . . . not just try to understand the economic motives.
In addition, some of the experiments probably depend in part on the common meaning of certain words being different than the definition that a professor would use. I think the experiments about certainty and probability wording may be tainted by that problem.
Professor Ariely is a clever fellow, but I think he stretches his conclusions further than they deserve. He's also interested in finding ways to make people look stupid rather than appreciating the genius that most people exhibit routinely. I couldn't help feeling that there was too much economic motive in his desire to write this book (a P.T. Barnum approach rather than trying to truly educate).
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Excellent book - controversial, but well founded
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Predictable Irrational is probably one of the most remarkable books after Freakonomics. This is a book about the paradoxes of human judgment. All people, regardless who they are, country they live in, jobs they have, or language they speak, make standard mistakes because our brains work in certain ways. Predictable Irrational is not the first book about such phenomena. My other favorite books on this subject include The Paradox of Choice by Barry Schwartz and Gut Feelings: The Intelligence of the Unconscious by Gerd Gigerenzer. Similar ideas are discussed in number of industry specific books, such as the project management book Project Decisions: The Art and Science.
What distinguishes Predictable Irrational from the rest is very interesting real life examples and descriptions of some psychological experiments. Dan Ariely does not have complex discussions about psychology, instead he uses amusing examples to clearly illustrate his points. My favorite chapter is related to the effect of relativity and anchoring. Why, for example, have salaries of CEOs increased dramatically after federal security regulators forced companies to disclose them? Or, why are people willing to pay ridiculous prices for luxury items, which does cost so little to produce?
We can train ourselves to be better decision-makes. In fact, decision-making is a key life skill. We may be able to overcome the illusions Dan Ariely talks about, by leaning about them. This is not easy as some illusions are quite hard to recognize. However, this does not mean that we should not try. It is like leaning to swim: at the beginning, people are afraid to swim. It is known psychological bias, but then people learn to overcome this bias by a series of drills using proven techniques. For example, I'm sure that when you start comparing prices in department stores, you will recall Dan Ariely's book and make better choices.
I highly recommend it.
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