A summary of the book “Predictably Irrational” by Dan Ariely. The book tells us we, humans, aren’t rational in our decisions sometimes. Moreover, there are fallacies we can predict, and create strategies to avoid irrationality in our thinking.
The book tells us we, humans, aren’t rational in our decisions sometimes. Moreover, there are fallacies we can predict, and create strategies to avoid irrationality in our thinking.
Relativity
We don’t usually choose things in absolute terms. We don’t an internal feeling to tell us how much things are worth. To have an approximate understanding of worth, we need to compare. The comparison should be between things that can be easily distinguished.
That’s why salespeople give us a few options instead of one. So we can have matters to compare. And usually, the comparison is adjusted, thus some option looks better to us than others. Maybe there are “most popular” flag, or maybe there are additional services included that we don’t need, but they allegedly deem to be a better deal.
Among subscription plans, things that are selling there may be a decoy. It’s a thing to attract customers’ attention, so they have a biased comparison because the thing tends to adjust our preferences.
Anchoring
If we buy a product we see for the first time, it’s gonna be hard because we don’t know how much it should worth. It’s simpler if we’ve seen similar products and their price. Thus, we have an internal feeling of worthiness for related products. So, the first price wee see affects our future price considerations.
The anchoring is making decisions based on our first impressions and decisions. To avoid that, ask yourself do you need a product for such a price.
Consider your first decisions attentively to not make biased decisions in the future.
The real cost of “free”
If we see a “free” flag on items, we may make erroneous judgments. The flag can be used as a decoy in pricing so to affect your preferences in a way to favour an item with a “free” option. Even if the option is insignificant. For instance, you think of buying a $1299 laptop or a $1529 laptop with the same configuration and free mouse. Sure, the mouse isn’t worth $230, but it looks like a better deal.
When we see “free”, we think there is nothing to lose. In contrary to situations when we have to pay: there are gains, and there are losses. With “free”, we only gain(allegedly, in some cases). That’s what attracts us.
Consider asking yourself is “free” really worth it.
Social norms vs. market norms
We have 2 worlds of relationships: the world of social norms and the world of market norms. Social norms are a reason why people tend more to help you for free, than for a little money. It depends on what kind of help you ask, but if it’s a minor task, then why not help you because of kindness. That’s social norms.
Asking help for money leads to a switch to market norms. That’s why asking people to help you for $1 for a big task doesn’t work if a person’s time is valued at more than $1.
Once you bring market norms to relationships, it’s hard to get rid of them and switch back to social norms.
Giving gifts is better, than giving money. Thus, you keep social norms in a relationship. For instance, as a reward for help, it’s better to give a gift, than money. Giving money means paying for the services, hence introducing market norms, and a person can value their time for more than you gave him/her.
If a company we work for gives us a gift instead of money as a sign of appreciation, we tend to feel more duty at a job, because the salary isn’t a “sign of appreciation”, it’s a payment for the provided services.
Procrastination
We tend to procrastinate more if there are no fixed deadlines. And it takes a will to establish a deadline by ourselves. For this reason, deadlines set by someone is easier to stick to.
That’s because we prefer instant gratification over long-term one. Create strict deadlines.
Ownership effect
Owning something feels good, but for a reason, it’s hard to give what you own away. We overestimate the value of a thing we own. This old car is not worth additional few grands merely because we have a lot of memories connected to it. So, it’s harder for us to sell it because we focus more on what we lose than what we’ll gain after the deal.
So, our quirks:
- feeling ownership for a thing we haven’t even bought yet.
- thinking other people value our things the same as we do.
- we love what we already have and it’s hard to give the things away.
The cost of opportunities
We like to keep many opportunities opened. So we have reserve options. Even knowing the benefit of giving away opportunities that aren’t worth pursuing in the long run, we tend to save them anyway because we’re afraid of loss.
It’s better to concentrate on particular things, hence closing some doors. A lot of opened doors cause us losing focus and our time, which is very limited.
Expectations and decisions
Expectations adjust our subsequent feelings. If many people talk about a product, then we deem it’s worth trying. Or, we see a great ad, our expectations of the product are super high. The ad creates a higher value of the thing merely because increasing our expectations, so they affect our decisions about choosing products.
We tend to believe more priced products are better in quality. Discounted products are worse than full-priced. High-priced medicine(even if the product is a placebo) causes more relief than cheaper alternatives.
Tragedy of commons
People have some level of distrust in a market because of other people who neglect common well-being to pursuit a personal short-term gain. Imagine a common resource such as a river near a city. There are a few factories that consume water from the river. Also, they throw garbage away. The most simpler method to do that is to cast it out into the river. So 8 of 10 factories carry trash to dump, and 2 of them throw it away into the river. Though they all consume water, 2 factories accrue the short-term gain of not spending more resources to carry out the trash to a dump.
There are decent players and dishonest ones in a market, so if there is a bit of distrust, it affects a business for all in a bad way. We tend to not believe good businesses because of having an experience of meeting the bad ones.
Honest people cheat
There are more thefts of public property than the value of stolen cars, armed attacks, bank robberies and so on multiplied by many factors. It’s easier for people to steal something like a pen than stealing cash directly. If we deal with non-monetary things and there is a temptation to cheat/steal, then it’s easier for us to do so.