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

We like to think of ourselves as rational actors who carefully evaluate our options, and make decisions based on cool, dispassionate logic. Not bloody likely, especially after we’ve had a few drinks. Just ask the author of this book, MIT behavioral economist Dan Ariely. We all come loaded with preconceived ideas and past experiences and can nudge ourselves, or be nudged by those wanting to manipulate us, without our ever suspecting a thing.

This book describes a number of cleverly designed experiments that reveal some unexpected facts about how we respond to the world, and it has some startling observations. Everyone knows that teenagers are worse drivers than adults, but how much worse came as a surprise to me, for instance “a recent study found that a teenager driving alone was 40 percent more likely to get into an accident than an adult. But with one other teenager in the car, the percentage was twice that—and with a third teenager along for the ride, the percentage doubled again.”

The book looks at a number of different types of situations where we often behave irrationally even though we think we are being logical and consistent. One of the more interesting ones involves setting points of reference as a means of valuing things. A friend of mine owned a picture framing business and said she was advised to have one very expensive piece of framing -- something like $100 a foot. Her previous most expensive samples were around $60 a foot, but very few people bought them. However, once she set out the $100 sample, the $60 ones seemed cheap by comparison, and she greatly increased their sales.

There are also some experiments which show that money is often the worst way to motivate people, and I have certainly found this true in my experience. Company rules limited on-the-spot awards to very nominal sums, which I always gave out with a smile to let the employee know I was in on the joke. Otherwise, they were often insulted, thinking that the company valued their time and exceptional effort at such trivial amounts. On the other hand, non-money awards were often greatly appreciated, especially time off, but also things like reserved parking spaces and permission to work from home.

It is well known that placebos often work, but in many cases they work even when the person knows they are a placebo. Also, people often report that an expensively priced placebo works better than a cheap one. Along these line once, long ago, my girlfriend asked me to pick up a bottle of Acetaminophen, and said to make sure I got the “extra strength” version. When I got to the drug store I saw that the extra strength version had 500mg of the active ingredient and the regular one 325mg, so three of the regular ones were the equivalent of two of the others, but the extra strength pills were more than twice as expensive. I did the math* and then bought the cheaper ones, then went home and explained my logic to her, but the next day she went out and bought a bottle of the 500mg version, saying that the others just didn’t seem to work as well.

Other chapters in this book cover things like who cheats and who does not, and experiments in self-discipline. Students who were given strict deadlines for assignments did better on them that students who could set their own submission schedules, and also better than students who had no schedules at all but only needed to turn in their work by the end of the semester. Knowing that you will be held accountable for work by a certain date acts as a motivator to get it done on time, while flexible deadlines simply encourage procrastination. That is a useful message for managers.

The author also reminds us that we should be very wary of any company that says they want us to be a friend and not just a customer. Some of them will make gestures in that direction, such as helpful customer service and other niceties, but you can never count on them when you need them. After every natural disaster there are stories of insurance company claims adjusters taking advantage of homeowners by offering immediate cash settlements for far less than what the insurance policy actually covers. Many people desperately need money to start getting their lives back together, so they accept the offer, and this is all legal, but what a crappy way to treat “family.” Like a good neighbor?, oh please....

My only concerns about this book are those that other reviewers have mentioned. First, the author sometimes extends specific experimental results into broad observations about society, and seemed to be pushing his conclusions too far. There was also a set of experiments with male undergraduates to show how their judgments on the attractiveness of women were affected when they were masturbating. I suppose there is some good science in there somewhere, but the ick factor of that chapter was unsettling.

Overall, I enjoyed the book and readers can learn some useful things that can help them become better decisions, but perhaps only theoretically better. If this book has shown me anything it is that many of the biases that affect decision making are entirely subconscious, so even knowing what I now know may not help me.

* for demonstration purposes, assume that both bottles contain 100 pills; the regular strength (325mg) bottle costs $3, and thus each pill is three cents, and the extra strength (500mg) bottle costs $6, or six cents a pill. Three of the regular strength pills would cost nine cents, and two of the extra strength ones twelve cents, or 33% more for essentially the same amount of active ingredient. Q.E.D.