About Me

Ithaca, New York
MWF, now officially 42, loves long walks on the beach and laughing with friends ... oh, wait. By day, I'm a mid-level university administrator reluctant to be more specific on a public forum. Nights and weekends, though, I'm a homebody with strong nerdist leanings. I'm never happier than when I'm chatting around the fire, playing board games, cooking up some pasta, and/or road-tripping with my family and friends. I studied psychology and then labor economics in school, and I work in higher education. From time to time I get smug, obsessive, or just plain boring about some combination of these topics, especially when inequality, parenting, or consumer culture are involved. You have been warned.

Friday, September 11, 2009

#85 - Predictably Irrational

OK, most people wouldn't think a book on behavioral economics was a hoot and a half ... but I'm not most people. If you need proof, look no farther than my decision to study economics rather than HR in my master's program, so that I could come out making less money than my classmates. Yeppers, that's me.

Nonetheless, if you, too, have an odd sense of what's a good time, well ... then you, too, might enjoy Predictably Irrational: The Hidden Forces that Shape Our Decisions, by Dan Ariely (HarperCollins, 2008). And honestly, you might enjoy it even if you're not a weird economist wannabe like me. This is not a dense, put-you-to-sleep economics tome. It's a different way of looking at different social and psychological phenomena that we've probably all noticed, but never really thought about -- and it's a lot of fun to read. I don't know that I'd actually heard the phrase "behavioral economics" before I picked up this book, though I had read The Economic Naturalist and was familiar with the idea. In a nutshell, this is a field of study and a book that contrast the classic concept of homo economicus -- perfectly rational, consistently making decisions that are in our own best interests -- with the ways and reasons in which we're blatantly and even systematically irrational. Predictably irrational, if you will; hence, the title. Among the biases Ariely and his colleagues at (mostly) MIT examined are:
  • We tend to make choices, whether we're shopping for a new TV, buying a house, selecting an item from a restaurant menu, or looking for a date, based on an option's looking good relative to something else. Quoting Gregg Rapp, a NYC restaurant consultant, he argues that high-priced menu items make restaurants a lot of money not because so many people tend to order the costliest thing on the menu, but because they do tend to order the next-costliest item.
  • Again, all those Econ 101 lessons about prices being driven by supply and demand notwithstanding, how much we'll pay for something is very much influenced by an anchor price that's presented in conjunction with that something -- even if the anchor price clearly has nothing to do with the object. One experiment on this subject use the last 2 digits of subjects' SSNs as the anchors ... sure enough, those with higher numbers paid more for the same bottle of wine than those with lower numbers.
  • We love free stuff. (No surprise here, especially if you've met my mother-in-law ... but I digress.) I won't spoil the details of the experiments here -- they, and the others that follow, are about as kooky and entertaining as the SSN-related prices -- but the book explains the "FREE!" phenomenon thus:
"What is it about zero cost that we find so irresistable? Why does FREE! make us so happy? After all, FREE! can lead us into trouble: things that we would never consider purchasing become incredibly appealing as soon as they are FREE! For instance, have you ever gathered up free pencils, key chains, and notepads at a conference, even though you'd have to carry them home and would only throw most of them away? Have you ever stodd in line for a very long time (too long) just to get a free cone of Ben and Jerry's ice cream? Or have you bought two of a product that you wouldn't have chose in the first place, just to get the third one for free? ... [T]here are many times when getting FREE! items can make perfect sense. ... The critical issue arises when FREE! becomes a struggle between a free item and another item -- a struggle in which the presence of FREE! leads us to make a bad decision. ... This is a case in which you gave up a better deal and settled for something that was not what you wanted, just because you were lured by FREE!
Subsequent chapters look at why being paid for doing some things reduces our intrinsic motivation to do them, how physiological arousal affects the rationality (or lack thereof) of our decision making -- and trust me, you'll love the experiments they did for this one, and the all-too-well-known phenomenon of procrastination.

I'm not sure I buy all of Ariely's conclusions as the full explanation for any of the patterns he observes, but for that matter, the book doesn't ask us to. It's fun to read and interesting to think about, and the format (each chapter tackles a different "gee, why do we do this?" quirk) makes it easy to pick up and put down, or just skim around. Definitely one I'll recommend and pass along.

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