The concept of being predictably irrational sounds strange. How is it that someone can be irrational in a predictable fashion? Dan Ariely, the author of “Predictably Irrational,” dedicates his book to explaining this concept.
People act irrationally. They go against what is expected, and, at times, even against what is best for them. What is odd about people is that they do this continuously, in similar ways. As Ariely states, “our irrationality happens the same way, again and again.”
But why is that? And in what ways are we predictably irrational? Below are a few examples from “Predictably Irrational” that show that, while people think they are making rational decisions, that is not always the case.
It is frequently said that a first impression can make or break a relationship. But is the same true when it comes to purchasing?
Very much so according to Dan Ariely.
It concerns the concept of ‘anchoring,’ or the first price we associate with a product. If the first time you saw a pair of sneakers they were priced at $100, moving forward you would use that as your base price. So when you see $20 sneakers you would consider those to be cheap, and $500 sneakers expensive. If however your first association was with sneakers priced at $50, the $100 sneakers would be considered expensive, not the baseline used previously.
But how exactly does anchoring work? And can it work with arbitrary numbers?
Ariely ran a test with bidding and social security numbers and discovered that arbitrary anchor numbers can indeed be influencers.
With a class of 55 MIT business students, Ariely asked students to write down the last two digits of their social security numbers next to six different products he was displaying in class. After this, they were instructed to indicate if they would pay that many dollars for the item (i.e. if the last two digits were 79, would they pay $79 for the item).
Once that was completed, they were instructed to write down the largest amount they would be willing to pay for each item. Once everyone’s paper slips were collected, and the students who won the bidding bought their items, Ariely asked his class if they thought the arbitrary social security numbers influenced their bidding.
Naturally, the class replied in the negative, believing they were in control of their own decisions. But after analyzing the data, Ariely discovered this was not the case. The students with the highest social security numbers (80 to 99) bid highest, while those with the lowest (0-20) bid lowest. In fact, the people with the highest numbers bid 216 to 346 percent higher than those with the lowest numbers.
This shows that the association, completely casual and arbitrary, made a significant economic impact. Once the imprint is set, we consider all future decisions related to buying a product against the original price we associate with the item. As Ariely summarizes, “thus the first anchor influences not only the immediate buying decision, but many others that follow.”
Power of Procrastination
Most everyone has dealt with procrastination in some form. While we know that doing work earlier rather later will benefit us, both in terms of stress and more often than not in the quality of work, very rarely can we commit to not procrastinating at all.
But why is that? Wouldn’t it make more sense if people did work ahead of time, instead of irrationally giving themselves more stress? Even more importantly, what are ways to minimize this occurrence?
Ariely conducted an experiment with three of his consumer behavior classes one semester. He was assigning each class three papers to be completed over the 12-week semester. The only catch? Each class had their deadlines changed.
His first class was told when the papers were due (at the 4th, 8th, and 12th week’s end), the second had to commit to any date they wished (so if one student said they would finish the first paper by the 5th week, they needed their paper completed by then), and the third class had to turn their papers in on the last day of the 12th week.
Typically Ariely found that the class who could pick their own due dates spread their papers out amongst the semester, potentially realizing their problems with procrastination, forcing themselves to get the assignments completed earlier.
What was particularly interesting was Ariely’s results. Using the same grading scale and requirements across all three of the classes, it was clear to see which class scored the best overall: the one with strict (4th week, 8th week, 12th week) due dates. They were followed by the student-selected due dates, with the end of term class performing the weakest.
Ariely’s results break down into three important findings. The first, although probably obvious, is that students procrastinate. The second, as Ariely states, “that tightly restricting their freedom…is the best cure for procrastination.” And finally, that offering students a tool to pre-commit to deadlines improves their grades.
Therefore pre-commitment has been proven to help against procrastination and encourages success. By pre-committing to something, you are significantly improving the chances of the task being done well. Another example of where precommitment is frequently seen is in voting. By having people sign or post about their commitment to vote, even days or weeks before the election, they are nudged in the direction of actually completing the action and getting out to vote.
Ownership and Value
It’s pretty clear that as people, we enjoy stuff. And the stuff we have, we value highly. But if I were to put a price on something I own, I would rationally be able to figure out how much the average person would pay for it, right? I wouldn’t be biased at all when pricing it?
One of Ariely’s experiments involved tickets to Duke’s basketball games. The process of getting tickets to Duke games is nothing short of crazy. Students line up in tents outside the stadium, and an air horn is randomly sounded. Once the air horn sounds, a student from each tent needs to check in with the basketball authorities within five minutes, otherwise the entire group in the tent has to move to the back of the line.
In the 48 hours before tickets are given out, this process intensifies. When the horn randomly sounds, every student needs to check in, or risk being bumped at the back of the line. On top of this, for more important games, the students at the front of the line aren’t even assured tickets. Everyone gets a lottery number, and then the winning numbers are later posted in the student center.
The question Ariely and fellow researcher Ziv Carmon wanted to answer was in relation to ownership. Would students who won the tickets value their tickets higher than students who had not won them, even though they had each ‘worked’ equally work to get them?
Overwhelmingly yes. The students that did not get a ticket were generally willing to pay about $170 for the chance to see the game. Those that had won a ticket? They were willing to sell their ticket on average for $2,400.
That’s a $2,230 price difference, with the selling prices being about a factor of 14 higher than willing buyer’s prices.
Why is it so different? Part of it is because people fall in love with what they have. Another example Ariely gives is selling a car. When a person goes to sell their car, they are thinking about the road trips they had, the people they’ve driven with, and the love they’ve emotionally attached to the car. The buyer, however, doesn’t include these things in their assessment of price. The seller is thinking not only about what they would gain, but also what they would lose with the sale of the car.
So while for students without tickets, $170 seemed like a fair price for the basketball game, for sellers it was going to take $2,400 for them to part with the fantastic experience they had already envisioned themselves having.
When you judge if you like something, from coffee to beer to even a date, you are completely non-biased, right? You are judging nothing but the product or experience, and not anything you thought of previously. You are completely open minded, never once even considering judging a book by its cover.
Not so much.
Ariely completed many experiments with different products, such as beer, music, food, and coffee, that proved that the more you expect to like a product (before you even try the product!) the more likely you were to enjoy it.
One such experiment was run with coffee. One week Ariely and two of his colleagues began serving coffee to MIT students. For the price of free coffee, students were asked to fill out a short questionnaire about the coffee’s brew. Questions included how much they enjoyed the coffee, if they wanted it served in the dining hall, and how much they would be willing to pay for a cup.
Day after day Ariely handed out coffee. The only thing changing? The containers in which the optional condiments (i.e. milk, sugar, cream, nutmeg, orange peels, etc.) were displayed. For some days they were displayed in “beautiful glass-and-metal containers, set on a brushed metal tray with small silver spoons and nicely printed labels.” On other days, they were unceremoniously displayed in Styrofoam cups.
How did this change the results? Rationally speaking, there shouldn’t have been a difference. The coffee tasted the same, and was served in the same cups. However it was shown that if the condiments were served in the fancy containers, the coffee was rated as being better tasting, students wanted to see it in the dining hall, and people were more likely to pay more for it.
What does this show? That “when we believe beforehand that something will be good, therefore, it generally will be good – and when we think it will be bad, it will be bad.”
Expectations also come into play with stereotyping. While stereotypes can be beneficial because they help the brain categorize groups, it can unfavorably influence our perceptions, and even our behavior. Even the behavior of individuals within the stereotyped group.
Take two common stereotypes. The first, that women perform poorly in mathematics, and the second, that Asian-Americans perform well in mathematics. But then how does a female Asian-American perform? Which group would she fit best into?
Ariely and colleagues ran an experiment to find out. They asked a group of Asian-American women to take an objective math test and broke them into two groups. Before the test, women in one group were asked questions about gender, and women in the second group were asked questions about nationality and race. They were being primed to think in a certain mindset.
The results of the test went remarkably different. Women who were reminded before the test that they were women performed significantly worse than those that were reminded they were Asian-American. As Ariely sums up, “these results show that even our own behavior can be influenced by our stereotypes, and that activation of stereotypes can depend on our current state of mind and how we view ourselves at the moment.”
Ariely shows that expectations are more powerful than previously realized. They can change your perceptions of items and at times even perceptions of yourself.
To Conform or Not To Conform?
When you go out with friends to dinner, have you ever stopped to consider how you make your drink and meal choice? I like to think my decision is made based on what I’m hungry for, but Ariely shows that that is probably not the case.
Ariely ran an experiment where he worked with a local bar, offering four different options of beer (Cooperline Amber Ale, Franklin Street Lager, India Pale Ale, and Summer Wheat Ale) for free, under the guise of getting reviews for each of them. With groups, Ariely would go up and ask which they would like, take their orders, deliver the beer, and ask them to fill out a questionnaire. Very similar to the routine normally taken at restaurants, with the addition of the questionnaire.
For the next 50 tables, the procedure was changed. Small menus with the names and descriptions of the beers were given out to everyone at the table, with a place to indicate which one people wanted to try. This transformed the public act of ordering to a private one, which meant participants were no longer able to be influenced by their friends’ selections.
What Ariely found was interesting. When asked to order in a traditional fashion customers chose differently than when ordering in private. When giving their order in public in front of friends, the number of different types of beer increased. For example, Summer Wheat Ale was not the most popular beer. But when everyone else at the table had selected a different beer, some people felt obligated to select the beer not already ‘taken.’
What resulted? People wanted to show that they were unique and that they could think for themselves. But at the same time, they ended up with a beer they did not enjoy nearly as much. This was true except for the first person to order – he or she was unaffected by selections after him or her, so was able to get the beer of his or her liking.
Ariely does make a point to highlight the fact that this situation would most likely change depending on the culture that the experiment is done in. Some cultures identify more strongly with uniqueness, while others on belonging. Therefore, this experiment is likely to differ dependent on the values the culture holds dear.
So what does this mean for us? If we consistently do irrational things, what can be possibly do to make changes?
What is most important is that people become more aware of their behaviors and try to make them work for them, and not against them. For example, as Ariely shows, people are easily swayed by first impressions, not limited to products. So someone, knowing that they could let their first impressions cloud their judgement, could make a more concerted effort to take a step back and attempt to more rationally judge the situation.
People are not perfect. They are irrational. And that’s okay. But if there is anything to take away from Ariely’s book, it’s that by being more mindful to the irrationalities of life, people have the opportunity to better assess situations they face in life.
Ariely’s book ‘Predictably Irrational’ is absolutely fascinating. With each chapter diving into a new concept of human behavior that is completely irrational but happens consistently, Ariely helps describe why people act the way they do, and how we can become more aware of it.