Predictably Irrational: The Hidden Forces that Shape our Decisions
by Dan Ariely
280 pages (hardcover)
We are not as smart as we think we are. And as independent as we may think we are, we make decisions that are both irrational and predictable, even quantifiable. In his New York Times bestseller, Predictably Irrational, Dan Ariely, the Alfred P. Sloan Professor of Behavioral Economics at MIT, explores the impulses behind our decisions and our misguided trust in our ability to always see past our emotions.
From the fallacy of supply and demand to the power of sexual arousal, Ariely looks at those forces behind our decision making. Ariely is friendly, combining his own experience in general with that of the research he uses to back up his claims. Chapters are not chocked-full of data or academic and have real-world applications; in this way they can appeal to a larger readership.
For me, as you’ll see, this had a very unusual connection.
First, how do we make our decisions? What if, for example, you saw a line of people outside of a restaurant. It may strike you that this must be a good restaurant. You step into line, and then others follow. “We call this type of behavior herding,” says Ariely. “It happens when we assume that something is good (or bad) on the basis of other people’s previous behavior, and our own actions follow suit.”
Now consider the notion of “self-herding.” Starbucks created a coffee experience that was intended to woo over the consumer searching for the ambience of a European coffee house. “The prices of [Starbucks] coffee are a shock,” notes Ariely, and “you’ve been blissfully drinking the brew at Dunkin’ Donuts for years.” What could make you shift your loyalties? Why would you be willing to pay more for coffee at Starbucks?
Curiosity gets the cat, however. “Since you have walked in [to Starbucks] and are now curious about what coffee at this price might taste like,” says Ariely, “you surprise yourself: you buy a small coffee, enjoy its taste and its effect on you, and you walk out.”
Once you’ve enjoyed coffee, you’ll remember it. That good memory drives you to repeat the experience the next time you are passing through. “In doing so, you just became the second person in line, standing behind yourself.” This is self-herding and by the third time you stand behind in line, you’ve created a habit, and you’ve now changed the bottom line or anchor price, for judging the value of coffee.
Ariely plugs this into the idea of supply and demand. What if the government imposed a tax that doubled the price of gas? “Under conventional economic theory, this should cut demand. But would it? Based on his research, some consumers would compare the price of gasoline with their original anchor price (like Duncan Donuts’ coffee prices compared to Starbucks). But his research shows that “over the long run, and once consumers readjusted to the new price and new anchors…our gasoline consumption, at the new price, might in fact get close to the pretax level.”
I could not help but think of how happy I was when the pump said $2.50 a gallon (post Katrina) after paying $4.00 a gallon for some time. Why be happy? At $2.50 a gallon I was still paying a lot more than I had in previous years. Somewhere in the process, my anchor price changed and now $2.50 seemed like I was no longer getting soaked at the pump.
What about social norms versus market norms? Social norms are based on family, trust, and friendship. Market norms are about doing business. Corporations regularly attempt to build up the social, and near-familial relationship with a consumer, but often fail.
For example, banks consistently promote themselves as part of the family, but fail to meet the expectations of a social relationship. What if your check bounces and you are charged a fee? “In a social relationship…a hefty fee—rather than a friendly phone call from the manager or an automatic fee waiver—is not only a relationship-killer; it’s a stab in the back.” The angry consumer will immediately forget all the work the bank put into creating the appearance of a social relationship and immediately return to a market relationship.
Similarly, employers also often look to promote a relationship with employees based on social norms. “If employees promise to work harder to achieve an important deadline (even canceling family obligations for it), if they are asked to get on an airplane at a moment’s notice to attend a meeting, then they must get something similar in return—something like support when they are sick, or a chance to hold on to their jobs when the market threatens to take their jobs away.”
Unfortunately, “obsession with short term profits, outsourcing, and draconian cost cutting threatens to undermine it all.” The company appeals to market norms to make the cuts, a “nothing personal” approach, but if a family relationship was that abusive, would it stand?
“Again, companies cannot have it both ways,” writes Ariely. “In particular, I am worried that the recent cuts we see in employee’ benefits—child care, pensions, flextime, exercise rooms, the cafeteria, family picnics, etc.—are likely to come at the expense of the social exchange and thus affect workers’ productivity. I am particularly worried that cuts and changes in medical benefits are likely to transform much of the employer-employee social relationship to a market relationship.”
Ariely shows how human behavior, as irrational as it may seem, is remarkably predictable. We may not always understand what drives our decisions, good or bad, but they can be quantified in some way.
Whether we’re willing to spend more money because we’re following the herd (even when we are our own herd), or because while we are spending more money for gas than just a year earlier, it does not appear nearly as bad as when it briefly hiked up to $4.00 a gallon, we as human beings do not really weigh out the motives that drive us before we make a decision.
In the classroom, I get responses from students all the time that tell me exactly this.
When dealing with issues of religion and questions of belief that are very important to the student’s identity, what I often see are human beings holding onto ideas and concepts that appear indispensible. There are some beliefs that represent the bottom dollar, that is, there is no other belief that is good enough for them to consider changing.
I’ll call these anchor beliefs.
With some questioning, I often discover that many of these ideas are often peripheral to their belief system, but they just do not realize it yet. At the time they are considering a belief they possess to be indispensible, they are noticeably comfortable only when that belief is reaffirmed by others. I watch them shift, roll their eyes, or write furiously when they disagree.
I’ve heard the word “heretical” thrown around and on some rarer occasions, I’ve heard suggestions that unless someone affirms their belief, eternal damnation may be in order.
I break them off into groups where they have to talk to others who do not always hold on to the same ideas. Maybe they even have to write a joint statement on their beliefs, one for which the entire group can agree on. Soon they discover that the person next to them, the one who believed something they thought was nearly heretical, seems fairly sane. Perhaps this person even has good reasons for his or her view. Perhaps the conversation puts the value of their beliefs into perspective.
What should the student do? Alternative ways to express a position they could all agree on are suggested by group members and before I know it, a joint statement is in hand and presented to me at the end of the term.
One very conservative student suggested to me that when the class began, he would have questioned whether anyone could be a Christian who did not read the biblical book of Genesis literally or believed in evolution. However, the power of conversations and listening opens up the world and suddenly the student discovered a new anchor belief.
How often is this change the thing of persuasion from a good argument and how often is it herding?
He was no longer comfortable condemning the person next to him. They both agreed that what was important for both of them to affirm was not the details of the beginning of the universe, but the idea of God as creator.
Extreme statements are not really the norm in my classroom, especially since we have students that come in from all different backgrounds. It does happen, though, and I do tend to remember them more—much like the buzz that occurred when Southern Baptist leader, Albert Mohler, argued that evolution and the Christian faith are incompatible.
I am always intrigued to see where students end up after working with their groups, especially the extreme students. Perhaps that is because I think I was one of them several years ago. I’m intrigued by the way the human mind works and how we justify ourselves when we fortify our positions and re-justify ourselves when we’ve discovered better ground to stand on. It is not that our changes are without merit, or that perhaps the new belief isn’t better or sounder—like good and more expensive coffee can sometimes be—but the more I teach, the more they become predictable.