GRIZZLY PEAR

written snapshots

Predictably Irrational, Dan Ariely, 2008

My friend recommended Predictably Irrational: The Hidden Forces That Shape Our Decisions and it turned out to be an absolutely great read.  The basic premise is that people do not act rationally and certainly not as the rational agents that one assumes in classical economics.  Instead, we act in ways that would be considered “irrational” but are often quite consistent (hence the title).

Mr. Ariely is a professor in Behavioral Economics in MIT so his case studies are tested through experiments conducted on various college campuses.   For example, one of his case studies examined the appeal of “FREE!”.  In the experiment, they put up a concession stand selling chocolates – Hershey’s Kisses at 1¢ and Lindt Truffles at 15¢ a piece (you could only buy one).  73% chose the Truffle over the Hershey’s Kiss, even when they raised the prices a penny.  They then took the prices and dropped them a penny.  With the Hershey’s Kiss as “FREE!”, only 31% of the folks chose the Truffle. According to rational economics, this total reversal in behavior makes no rational sense (the price difference between Kiss and Truffle remained the same), and yet it does make “common sense”.

The book is filled with other such studies of “common sense” behavior tested empirically through different experiments.  He closes each chapter with takeaway concepts which could be applicable in more substantial situations (i.e. if you want people to get preventative health care, it would be much more effective to make it FREE! instead of “really cheap”).

Well written and very readable, it is well worth picking up — not a classic that I must have on my bookshelf (I got my copy at the library) but is worth the time for a read.

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