Predictably Irrational

1. PREDICTABLY IRRATIONAL Dan Ariely

2. THE TRUTH ABOUT RELATIVITY 01 Why everything is relative – even when it shouldn’t be Most people don’t know what they want until they see it in context We only compare things that are easily comparable Often a decoy is employed, tricking people into the ‘easy’ choice

3. THE FALLACY OF SUPPLY AND DEMAND 02 Why the price of pearls - and everything else - is up in the air Our first impressions (of price/product) are imprinted in our minds and become an anchor This anchor affects future decisions about what we are willing to pay ‘Arbitrary coherence’ decrees that although initial prices can be "arbitrary," once those prices are established in our minds, they will shape not only present prices but also future ones (thus making them "coherent")

4. THE COST OF ZERO 03 Why we often pay too much when we pay nothing Zero is a source of irrational excitement Most transactions have an up side and a down side, when something is free we forget the downside Think quickly: Would you pick a $10 voucher for free or a $20 voucher for $7. Most people opt for the free voucher rather than the voucher that would give them 3 extra dollars

5. THE COST OF SOCIAL NORMS 04 Why we are happy to do things, but not when we are paid to do them Social norms e.g. Opening a door for someone or helping a friend move house vs Market norms - payments Lawyers asked to work for $30 an hour for needy retirees refused , comparing the $30 to their market salary. However, they were willing to offer their services for free When on a date, never mention the price of the food; even though it is explicitly printed

6. THE INFLUENCE OF AROUSAL 05 Why hot is much hotter than we realise Men were sought out and asked questions about sexual and moral decisions, these questions were then asked to them again in a high state of arousal The magnitude of underprediction by the participants was substantial, we are unable to predict the ways in which our emotions can take control of our behaviour It is this concept of having two sides to ourselves that inspired Dr Jekyll and Mr Hyde

7. THE PROBLEM OF PROCRASTINATION AND SELF-CONTROL 06 Why we can’t make ourselves do what we want to do Americans are not only not saving but are spending more than they earn, the average American family now has six credit cards As with losing weight, we lose the battle to save, procrastinating instead Students who were allowed to set their own deadlines for submitting coursework tended to do better when they spaced the timings, realising their tendency to procrastinate

8. THE HIGH PRICE OF OWNERSHIP 07 Why we overvalue what we have Much of our life story can be told by describing the ebb and flow of our particular possessions We fall in love with what we already have, we focus on what we may lose and we assume other people will see the transaction from the same perspective as we do Another peculiarity is that we begin to feel ownership even before we own something e.g. eBay

9. KEEPING DOORS OPEN 08 Why options distract us from our main objective We cannot stand the idea of closing doors on our alternatives In each case we give something up for the sake of having these options Given a simple set up and clear goal, all of us are quite adept at pursuing the source of our satisfaction

10. THE EFFECT OF EXPECTATIONS 09 Why the mind gets what it expects When we believe beforehand that something will be good, generally it will be good - and when we think it will be bad, it will be bad To look at whether these influences just change our beliefs or our physiology as well, Ariely brewed two beers, one with vinegar, one without. The students who were told about the vinegar after drinking the beer liked it a lot more than those told first, just as much as those who were not told at all

11. THE POWER OF PRICE 10 Why a 50-cent aspirin can do what a penny aspirin can’t In general, two mechanisms shape the expectations that make placebos work; belief and conditioning e.g. Pavlov’s dogs On the basis of price alone it is easy to imagine that a $4000 couch will be more comfortable than a $400 couch Marketers rely on perceived value but this can become real value if the customer is getting more satisfaction from the promoted product

12. THE CONTEXT OF OUR CHARACTER, PART I 11 Why we are dishonest, and what we can do about it Decisions about honesty and dishonesty relate to the size of the transgression People cheat when they have the chance to do so but they don’t cheat as much as they could Once they begin thinking about honesty they stop cheating completely

13. THE CONTEXT OF OUR CHARACTER, PART II 12 Why dealing with cash makes us more honest Cheating is a lot easier when it's a step removed from money Stealing a Coke vs stealing 1 dollar What do we do now that cash is disappearing ?

14. BEER AND FREE LUNCHES 13 What is behavioural economics, and where are the free lunches? When people in a bar or restaurant order out loud in sequence, they choose differently from what they order in private, opting for variety and are generally less happy with their choice The first person to order in the sequential group was the happiest in the group Standard economics assumes that we are rational; making logical, sensible decisions. In fact we are far less rational and our irrational behaviours are systematic and predictable