Predictably Irrational-Dan Ariely

3.5/5 stars
5/28/23
I'm actually teaching an ESL rationality reading club this summer, and we've selected Predictably Irrational as our first book! So excited to lead discussions about the chapters. 
general reflection: book argues that humans behave in irrational ways-and that their irrational behavior is not erratic, but rather highly predictable. e.g.: we measure value in relative ways, which leads to bad perceptions of value; we're irrationally drawn to free things; we always underpredict the extent to which our decision-making is affected by emotion. I enjoyed it-made me more aware of irrational traps I fall into myself. But I would have liked if there was more discussion on ways to become more rational, other than 'be aware of and question your irrational behavior.' Compared to other things I've read in the EA & rationalism movement (which I'm very much a novice in), it feels kind of shallow.
Also, not written in a super engaging/clear way--each chapter just kind of erratically describes lots of experiments, with some discussion sandwiched in.
Introduction
Goal of book?
o	Understanding irrationality.
Author’s backstory?
Attitude to alternative theories & questions; finding empirical tests for our hypotheses
What does the author study? How things work, how people behave
o	Inherent biases
o	Why/how people repeatedly make the wrong decisions
Bandage removal process
How does the author perceive human nature, and how is it different from the predominant view?
o	Predominant view: Shakespeare. We are rational, perfect, capable of making reasonable decisions. (conventional economics)
o	His view: humans are pretty irrational. (behavioral economics)
♣	(what does ‘irrational’/‘rational’ mean? How are you rational/irrational in daily life?
What does it mean for humans to be “predictably irrational”?
After each chapter: how could the principles revealed in the experiments make your life better or worse? Based on what you have learned about human nature, what will/can you do differently?
Ch. 1: The Truth about Relativity
Can you explain the Economist example? How did the MIT Sloan students choose differently when presented w 3 choices vs. with 2 choices?
“humans rarely choose things in absolute terms...” we perceive value in a relative, not absolute, sense.
o	What do relative & absolute mean?
o	What is an example of this that you can remember from your everday life? (e.g. optical illusions; buying something on JD; deals when buying fruit (10Y/jin, 15y/2 jin)
o	NYT example, TV example
Also, relativity is skewed towards comparing things that can be easily compared.
o	What is the house buying example?
What is the decoy effect?
o	A is better than –A, so we think it is better than B too
o	Paris & rome
o	Faces
o	Bread maker
o	CEO salaries
“comparison is the thief of joy”
o	“man’s satisfaction with salary depends on… whether he makes more than his wife’s sister’s husband.”
Solutions?
o	Be aware of who we surround and compare ourselves with
o	Think more broadly: don’t get trapped in local comparisons/relative judgments.
Dating; traveling; etc. be mindful of the trap of relativity?
(are there any good parts about relativity? Why do you think our brains are wired this way?)
Chapter 2: Fallacy of Supply & Demand
“a great law of human action… in order to make a man covet a thing, it is necessary to make the thing difficult to attain.”
o	i.e., value is relative (again)!
Anchoring: what is an anchor?
o	arbitrary coherence.
o	The initial price of black pearls is ‘anchored’ to an arbitrary high price. Though this is arbitrary, “once those prices and established in our minds they will shape not only present prices but also future prices (this makes them ‘coherent’).” (28)
o	Anchor (e.g. SSN, manufacturer-suggested retail price, prices in old city after moving to new one) sets an initial standard for prices that everything else is judged relative to
2nd price auction
can we change anchors?
o	Experiment testing anchor price for listening to annoying sound again. Anchoring question: would you be willing to listen to the sound again for a low/high amount? In 2nd round… would you be willing to listen for a high/low amount?
o	Results: we stick to our anchors pretty solidly, so our first decisions set the tone for a long sequence of decisions (38)
o	“first impressions count!”
what is self-herding?
o	Herding: making decisions based on others’ behavior
o	Self-herding: making decisions based on previous behavior. Forming habits
Tom Sawyer example: anchoring changes your perspective on things.
o	(how can we use anchoring to our advantage in our own lives?)
implications of arbitrary coherence:
o	supply & demand are interconnected
o	free market is imbalanced-can’t trust ourselves/others to behave rationally
what should we do to become more rational?
Train ourselves to question our repeated behaviors
Be more aware of the ‘first’ decisions we make
Going w gut feeling & rationalizing after is ok! But we need to be aware of it
Chapter 3: The Cost of Zero Cost
Why are we so drawn to freebies, particularly when comparing freebies to a non-free option, and even when it’s not we really want?
The zero price effect: emotional response to free stuff is very high, so we jump towards free stuff.
o	Amazon free shipping
o	Getting free stuff while taking lots of time
o	0-calories, fiber, fat is more appealing than 1 calorie for instance
we should be aware of misleading freebies, but also known that free can be used to drive social change, and is good!
Do you agree with the author’s argument that one person should pay the entire bill during a meal?
Chapter 4: The Cost of Social Norms
There is a conflict between norms in the social and market world.
o	Social norms: warm and fuzzy. Based on reciprocation, mutual joy/pleasure.
♣	E.g. social sex
o	Market norms: transactionary. You get what you pay for. More selfish, self-reliant
♣	E.g. prostitution
Difficult to reconcile social and market norms—people want to do things pro bono for a good cause, because having market norms enter into social territory is bad-violates social norms. Actually, “when a social norm collides with a market norm, the social norm goes away for a long time”
Dragging-circles-onto-squares experiment: participations worked harder under nonmonetary social norms than market norms
o	Would you rather work for money or for a cause?
But gifts: are in the social norm world, not the market norm world. Gifts are financially inefficient, but socially effective.
o	But this is interesting, bc of how ingrained gift-giving is in the ‘business’ world in china
What do you think about companies and bosses trying to establish ‘social’ relationships with consumers or their employees?
o	Companies can benefit from this social relationship (creates goodwill, devotion to company), but know it is very hard to maintain
o	Is american economy becoming increasingly ‘market norm’-based? Is this decreasing creativity and commitment? Perhaps we must have more ideological education.
Pros and cons of market norms and social norms
What do you think about this in education?
o	Perhaps strictly market/business relationships are best in some circumstances (e.g. btw teachers and students)
o	But social devotion is very good
“money is often the most expebsive way to motivate people” (94). Agree?
Chapter 5: The Power of a Free Cookie
what happens in filene basement’s “Running of the Brides”? how does traditional economics (the 2 laws of demand), and behavioral economics, analyze the Running of the Brides?
o	Similarly: Black Friday
Offering financial payment in a social situation can reduce one’s motivation to engage.
However, asking people to pay us can actually increase their motivation to engage, because the situation turns into a market one and no social norms apply. We become selfish maximizers.
What happened in the starburst and chocolate experiments?
o	First law of demand verified but 2nd one disconfirmed
What happens in nonmonetary exchanges involving only effort—are social norms undermined?
o	Effort falls somewhere on the spectrum btw market and social norms—keeps social norms partially intact
What is the carbon tax? Should we implement carbon taxes (cap and trade)?
Chapter 6: The Power of Arousal
What experiments did the author do with Berkeley college students? Dispassionate state vs. state of arousal
o	the author had difficulty with getting experiment approval: what do you think about current taboos towards sex in research?
o	Unable to predict the degree to which emotional passion would engage them (not only in sexual contexzts, but also other emotions—jealously, anger, hunger, …)
o	What is Jekyll and hyde?
How does the author recommend we avoid irrational behavior? How can we ensure safe sex, consent, etc?
o	Availability of contraceptives/condoms
o	Awareness of irrational behavior/emotions
o	Avoiding situations in the first place
Implications for preventing teen pregnancy, spread of HIV-AIDS, STDs, etc
Safe driving, better life decisions, etc: being better informed of how we will act in emotional states
Chapter 7: The Problem of Procrastination and Self-Control
Why do americans not save money? Why do we delay our doctor’s/dentist’s appointments, overeat when we are on diets, procrastinate so much?
o	It’s very easy for us to make goals when we are cool-headed, but in the face of immediate gratification our emotions rise up
As fellow students, how have you experienced/tackled procrastination?
The deadline experiment with 3 classes: teaches us that though everyone has problems with procrastination, we should recognize and admit their weaknesses, to precommit themselves and be more in self-control.
Preventative healthcare > remedial healthcare
o	Mandatory health checkups, physicals, etc.
♣	China: free physicals
o	Doing checkups slightly late is better than not at all! Simplify
Savings
o	Self-limiting spending card
o	‘ice glass’ credit card method
other self-control stuff
o	checking texts/wechat/email
o	Predictably Irrational was written in 2008. Do you think that internet addiction, etc., has increased sinc e then?
o	Reduce the ‘randomness’ of the reward during checking email, which reduces temptation to check.
o	Pair unpleasant actions (for long-term reward) with immediate, positive reinforcements: e.g. pairing interferon treatment with movies.
“real improvements in life expectancy and quality are less likely to be driven by medical technology than by improved decision making” (166). Agree?
Chapter 8: The High Price of Ownership (ownership fundamentally changes our perspective)
Duke basketball
o	Tenting at K-Ville, lottery
Endowment effect: when we own something, we value it more than others do. Ownership increases our perception of value.
o	The students who won a basketball ticket valued it at around 2400 minimum, while those who didn’t (but did the same work) valued it at around 170.
o	We think our children/pets/belongings/houses are much better than those of others
Peculiarities:
o	Putting work into something makes us love it more (ikea effect)
o	We can feel ownership even before we own something. E.g. being drawn to a wedding dress before you even buy it; using a trial period for a subscription
o	Ownership also applies to points of view. Reluctance to change our perspective, ideology, …
Reasons for these peculiarities about ownership:
o	We fall in love with what we have – sentimental value
o	We focus on what we lose, rather than on what we gain. Natural aversion to loss. (e.g. with extreme hoarders)
o	We assume others will see the transaction from the same perspective as we do: buyers often nitpick on bad parts, while we see all the good parts
The Lake Woebegone Effect: we tend to think more highly of and be overly optimistic about aspects of ourselves.
What should we do?
o	Be aware of the ills of ownership
o	Try to view all transactions from a 3rd party, nonowner, nonpersonal perspective; distance yourself
o	Realize our biases and strive towards greater objectivity
Chapter 9: Keeping Doors Open
As humans, we have trouble committing—we want to leave as many doors (alternatives) open as we can, but in response we lose time.
o	Taking gen-eds and putting off choosing our major
o	doing a lot of 课外班, but sacrificing ability to go deep in one hobby
o	my example: considering colleges and debating (keeping options open) till 5/1, college commitment day, when I could have made the same decision a month before.
Other examples
o	Filibustering and gridlock in US congress (195)
experiment:
o	R, B, G doors. Disappearing variation—students clicked frantically on every door, and still made less money than students that stayed in one room
o	Donkey who starved
We have a dizzying abundance of opportunity, but we’re spreading ourselves too thin. (what does ‘spreading ourselves too thin’ mean?).
We need to consciously start closing some of our doors: saying no. btw 2 relatively equal opportunities, we should quickly decide.
What steps can you take in your life to close doors and remove clutter? To be less indecisive?
Chapter 10: The Effect of Expectations
We see what we want to see: people’s expectations influence their views of subsequent events
o	Calling a ball ‘in’ during tennis
o	Lip reading during conversations in noisy rooms
o	Wine tastings: if you’re told before which wine is more expensive, you’re more likely to believe that one is more tasty; outcomes are different if it is a blind taste test
♣	Same with the beer experiment
o	Learning that a movie had good reviews before watching it can make you think more positively about the movie
o	Coke vs pepsi: advertising + presentation is very much why we like coke
o	Coffee experiment: ambiance and presentation is very important.
♣	Like how Starbucks became a dominator by providing a nice environment
♣	Presenting food at nice restaurants
o	Stereotype set expectations: sometimes positive, sometimes negative
♣	E.g. Asian American women math experiment
♣	‘elderly’ word association experiment
o	why do we think the Mona Lisa is good?
Positive expectations, however, are good, in that: if we expect nothing, we get nothing
Does it matter if you learn of knowledge after the experience? Does knowledge reshape their sensory perceptions to align with the knowledge?
o	It doesn’t really reshape it
What does this teach us about tackling harmful stereotypes?
o	E.g. making friends of other ethnicities
o	Acknowledging our biased expectations
How have expectations shaped your life?
Chapter 11: The Power of Price
What is the placebo effect?
o	Things are effective because people believe they are effective. Also because we are conditioned to feel X emotion from similar previous experiences, leading to feeling X emotion later.
Does price create placebos?
o	Yes. High price makes us expect high quality, and it can actually change our experience (both physical and mental)
What to do?
o	We should recognize that this is irrational behavior. Conscious recognition of the placebo effect makes it less potent.
Ethical issues:
o	Should doctors prescribe placebos?
o	Are placebo experiments ethical?
o	Should placebos be hyped up in marketing?
o	Should we hike up prices so people think medicines are more effective?
Chapter 12: The Cycle of Distrust
People deeply distrust marketers (e.g. car salesmen)
Tragedy of the Commons: a few defectors taking advantage of public goods in the short term makes everyone worse off in the long term. Distrust is infectious: when someone abuses trust and is selfish, people become distrustful, and everyone loses.
Cheating, lying, etc., is rewarded in the short term. But long-term, it creates huge distrust.
How deep is our mistrust against companies, political parties, …?
o	distrust has a big influence—it colors our perception of products ourselves. Changes our sensory experience
it’s still possible to repair mistrust, if the companies behave in an exemplary way, address customer complaints, be transparent
How can we regain trust in relationships, etc?
How do we become more honest?
o	Constantly remind people of the rules—whether through signing honor codes, thinking of 10 Commandments, reviving professional standards
o	Avoid/ban situations where one may be tempted to be dishonest from the outset
Chapter 14: The Context of Our Character, Part II
Stealing/taking ‘objects’ is easy, but dealing in cash actually makes us more honest.
We irrationally think it’s less bad to cheat when it involves non-monetary objects, AND we aren’t aware of this.
o	It’s easier for us to rationalize
o	There is a sanctity in paper money—an ‘honor’ code attached to it
Even morally good people are not immune to being partially blinded by their own minds
o	Stealing coke from the fridge
o	wardrobing
And supposedly morally good, reputable companies also steal indirectly:
o	Credit card two-cycle billing
o	Airline blackout dates
We—as individuals, as a nation—need to become aware of cheating of nonmonetary objects, particularly as paper cash disappears and everything becomes more and more electronic
Chapter 15: Beer and Free Lunches
Individualistic cultures:
When ordering publicly, we often will choose different menu items and have more variety, to look different (our need for uniqueness) while sacrificing some happiness.
o	Sacrificing personal utility to gain reputational utility.
When ordering privately, there is less variety—we get what we want.
Collectivist cultures (HK):
Ordering publicly, will often choose the same menu items as those before—affirming 合群 ability but still sacrificing happiness
What should we do?
Choose an order before the waiter comes around, and stick to it. Don’t be influenced by others!
Conclusion
All the experiments in this book have showed that we are far less rational than standard market economics assumes! We make the same predictable mistakes, over and over. We are not completely in the drivers seat, as we usually assume—we are swayed by many forces.
But we are not helpless: through awareness and viligance, we can overcome our inherent irrational shortcomings.
This is an argument for behavioral economics, which, through combining economics with psychology, arrives at more accurate predictions and models of human nature and behavior.
A bonus of this view: there are still ‘free lunches’! because we all make mistakes (we’re not perfectly rational participants), we all have opportunities for improving our happiness, utility, etc. ‘free lunches’: mechanisms that provide net benefits to all parties.
o	new possible methods, mechanisms, interventions that would help people make more rational choices.
o	E.g. ‘save more tomorrow’ program: sacrificing bigger parts of salary to put into retirement fund. Benefits both workers and company
Predictably Irrational-Dan Ariely

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