Caroline's Reviews > Predictably Irrational: The Hidden Forces That Shape Our Decisions

Everything is relative:

We don't know what we want, unless we see it in context. eg we don't know what sort of racing bike we want until we see a champion cyclist ratcheting gears on a particular model in the Tour de France. We don't even know what we want to do with our lives until we find a friend or relative who is doing what we think we should be doing.

Thinking

This is difficult, and often unpleasant. It is much easier just to follow our intuition (which can often be based on the silliest things.)

The Middle Option (Everything is relative...)

Given three options, we usually choose the middle one. eg if an electrical shop wants to sell a certain television set it will put it in the window with a more expensive and less expensive television set on either side. We will make comparisons....and go for the middle option.

Envy and one-upmanship

These are often big motivating forces in people's lives.

Take the example of escalating salaries and perks given to senior executives in US companies.

1976: The average CEO was paid 36 times as much as the average worker
1993: The average CEO was paid 131 times as much as the average worker

At this point the Federal securities regulators stepped in. In an effort to stop this ridiculous escalating of executives' salaries, they forced companies to reveal pay and perks given to their top executives. They thought this would deter the greed.

Instead, after the legislation about transparency was put into effect, CEOs were paid 369 times as much as the average worker! When CEOs saw how much other CEOs were being paid, they felt envious, and demanded equity - and their salaries and perks crept up and up!

How to combat the envy drive

Make a conscious decision to try and lead a basic/simple life. The alternative is 'The more you have the more you want,' Don't be a greedy CEO. Be sane.

Stay away from social circles where spending and one-upmanship are a part of how they do things.

When buying a house, or other major investments - just don't look at products outside your budget.

There is no merit in increasing the luxury in our lives. We just get used to more and more expensive things, and saving becomes more and more difficult.

Realise that the price of many products is arbitrary

Usually a product's price is affected by the initial price at which it was sold. This then become the accepted price for that product. (My example) If people go to an art gallery and pay £1.00 for a beautiful pebble they will think this is a fair price for future pebbles they buy. If people pay £10.00 for that first beautiful pebble - they will regard this as the norm.

We reinforce our own behaviour

If we like something once, we will do it again, and this builds up into a self-affirming belief of 'liking' something. Each time we do something we initially liked, we increase the degree we decide we like it. Sometimes we need to step back and see how much this is still true.
*How did this habit begin?
*How much pleasure will |I really be getting from it?
*Would I be better off spending the time/money elsewhere.

We get seduced by glamour and the appearance of sophistication

This is why Starbucks succeeded over Dunkin'Donuts.

We do what is expected of us

The author read some poetry to his students. He then asked half if they would pay $2.00 to hear them again. They agreed.

He asked the other half if they would listen to them again if he paid them $2.00. Again they agreed.

The lure of the free offer

The author argues that the attractiveness of two for the price of one (ie one free) is hugely more powerful than just offering a single product more cheaply.

He cites other examples as well. We love things that are free, and are inevitably seduced by offers of things for free.

This is why Coca Cola have a cola product called Zero. Zero calories. Zero = free. Free from calories! Free, free, free!

Market exchanges versus social exchanges

We live in two worlds, one governed by market exchanges, and the other governed by social exchanges.

Market exchanges are business...sharp-edged, prices, rates, interest, cost and benefits.

Social exchanges are friendly...warm and fuzzy.

People are happy to do things for free, eg give their time to charities, but you can't taint this by mixing in market exchanges with what is basically a social exchange.

eg lawyers were asked if they would help poor elderly clients for £30.00 an hour. They refused.
Then another group were asked to do the same thing again for free, and they all accepted.

eg A yoga master taught his students for free in his home town. One day they said they loved his classes and would be happy to make a financial contribution towards the class. He replied "If I charged you for this class you could not afford me." Again - they were transgressing the market exchange/social exchange divide.

A lot of businesses nowadays try and introduce the warmth of social exchanges into their work practices. They want the work environment to be more friendly and cosy. But when you have practices like zero hour contracts, or sending employees work-related emails outside working hours, a cloak of chummy friendliness wears a bit thin.

It's the same with relations between businesses. Friendliness is good for business. But then one business pays its bill late and gets charged an extra fee for delayed payment. This again puts a strain on the chumminess. Today many companies try and market themselves as social companions, but this makes it hard for them when they have to contravene social norms and become businesslike.

Don't make decisions when you are emotionally aroused

The author and his colleagues did computer experiments with students who were sexually aroused, and their decision-making abilities went haywire. The author feels that this is the same for other emotional states. eg It is not good to make decisions when you are angry, hungry, fearful or in pain. It is far better to walk away and calm down, and yes, don't send that email....

It is better to avoid provocative situations than to try and walk away from them

Rates of saving in different countries
America - people spend more than they earn

Europe - 20%

Japan - 25%

China 50%

Reasons for American rates of spending.

* Consumerism
* An explosion in consumer credit. The average American family has six credit cards.

Why have we got such little self control

Immediate gratification versus long term goals.

The best way to curtail our urge for immediate gratification....

*Set ourselves deadlines
*Start a blog discussing our efforts to keep to our goals.

We value what we own hugely more than other people value it

The author did an amazing test re basketball game tickets at Duke University, which has a small stadium.

Students had camped in a line to buy tickets for several days, for a special game. Not only did they camp, but they had to report regularly to the ticket office, or they were sent to the back of the queue.

Afterwards the author did a test...

The average price people who managed to get the tickets were prepared to sell them for...$2,400.

The average price those who didn't get tickets were prepared to buy them for $170.

(And no, that is not a typo)

Because we love what we possess, we over-value it. We also exaggerate to ourselves the sense of loss we would have if we lost one of our possessions.

We expect other people to value our possessions as much as we do - but they don't.


This is why 'trial' promotions are so successful. After people have something on trial for a couple of weeks they want to keep it. Emotionally it has become one of their possessions.

Ownership doesn't only apply to material things, it also applies to points of view

Once we take ownership of an idea we value it more than we should. Frequently we can't let go of it because we can't bear the thought of its loss. What are we left with? An ideology that is rigid and unyielding.

(Me - Re the above....I couldn't relate to this concept at all!)

Downgrading anything is experienced as a loss

eg moving to a smaller house.

The challenge of making choices

In today's world we have far too many options. It is important to try and prioritize - if necessary just choose any particular options, rather than having too much on our plate and finding life stressful as a result. We have to commit ourselves to just a few paths, interests, courses in our lives.

Human nature wants to keep all options open (the author has done copious experiments to prove this), but this is bad. We must simplify.

Another downside of following too many things in your life, is that the important things get overlooked, or don't get enough attention.

Placebos in medicine

Expensive aspirin and paracetamol is more effective than cheap aspirin and paracetamol.

Several operations have been proved to be pure placebos. Patients given fake operations have recovered just as well as those given genuine operations (needless to say this only applies to certain operations!)

The author conducted various experiments - eg giving gym goers a stimulant tonic which said it would "improve performance". When told it was more expensive, the gym goers performed better and said it was more effective. When told it was cheaper - the gym goers found it less effective.

The good news about our weakness for 'expensive' pills and tonics.... Once we are told that the cheaper options is exactly the same as the more expensive one - we get equal help from both products.

Dishonesty

Most of us are prone to being a little bit dishonest. The author cites several experiments to show this. But most of us have a cut off point re dishonesty. We might nick a pencil from work, or cheat a bit on expenses, but we wouldn't take money from a colleague's purse.

The author argues at some length in the book for the importance of honesty in creating a safe and trustworthy society. He talks about the dishonesty of major institutions, as well as individual dishonesty.

He talks about the fact that a lot of lawyers now complain that their profession has become unethical, and he feels that doctors, bankers and other professional are equally affected. He feels this can be blamed on a movement in the 1960s to deregulate the professions.

The author feel passionately that good ethics and honesty are an important and valuable asset to society, and they need to be encouraged and protected as much as possible.