Predictably Irrational
by Dan Ariely
This book recounts a number of psychological experiments conducted
by the author, an MIT professor of Behavioral Economics, in which he
find a number of ways in which people do not make rational decisions.
He tells the story of a number of fairly convincing, though often very
informal-sounding, experiments where he finds a number of things.
He spends a chapter talking about 'the power of "FREE"', where people
will agree to a bad deal because it offers some "FREE" extra.
He spends a lot of time discussing how we judge prices relative to
other prices, rather than in absolute terms. In fact, even the
sign of a price is something that can be suggested. To illustrate
this, he put college students into a position where one group could be
paid to listen to him recite poetry. One it was established that
they were being paid, they would charge more for longer readings.
Another group had to pay him in order to be able to listen to his
poetry, and they were willing to pay more for longer readings.
The whole story of Tom Sawyer painting the fence comes to mind.
Another experiment took place at a university were it was very hard to
obtain tickets to basketball games. Students had to put in
tremendous effort waiting in line, just to be able to participate in a
lottery to get a ticket. Once it was determined who had won
tickets and who had not, he queried students on how what price they
would accept for the purchase or sale of a ticket. Students who
had tickets valued them at over a thousand dollars in value.
Students who did not, who, a week before, had been equally likely to
win the tickets, were willing to pay at most $200 for a ticket, showing
that once we have obtained something, at least something that was
difficult to get, we value it much more highly than we otherwise would.
In another experiment, students were given a choice between two beers,
Sam Adams, and "MIT Brew" with secret ingredients. Most preferred
the"MIT Brew", which was actually Sam Adams with vinegar added.
However, students told about the ingredients before tasting never
preferred the Brew, while those told about the ingredients after
tasting still preferred it.
The author is not a fan of capitalism, in fact, he argues a couple of
times that capitalism assumes rationality and that since, as he
convincingly illustrates, people are not very rational, we should
consider alternatives to it. He does not go into a lot of detail
about any proposed alternatives. In one chapter, he finds that
people perform better when doing personal favors than when they are
paid, and suggests this might be the basis for another system.
But how is this to work in a large economy where most transactions are
with strangers? We would have to live in very small societies for
peoples' karma to catch up with them, if we didn't have money keeping
precise score. Few of us want to reorganize our
society into small towns where
everyone knows everyone -- such towns exist, but most of us would much
rather not live there. Furthermore, in another
chapter, he finds that people are more honest when money is at
stake. He did experiments where he would leave unlabeled six
packs of coke in college dorm refrigerators, and then observed that the
coke was generally gone within 72 hours. He then placed plates
with six dollar bills on them in the same refrigerators, and found the
money generally untouched 72 hours later. So this leads goes
against his thesis against using money to make decisions.
Furthermore, in capitalism, people have an incentive to become more
rational, if we learn of the errors of our ways, we can correct them
and lead better lives.
In the wake of the Enron / Worldcom scandals, he did some studies with
Harvard MBA candidates and found circumstances in which many of them
would cheat. I thought he was giving away his own political bias
here, only picking on MBA candidates, I would've been interested to see
if Art majors, English Lit majors, PE majors, or Engineering students
fared any better.
In another test on cheating, he found that test subjects who were first
asked to recall as many of the ten commandments as they could, cheated
any more or less than students who weren't asked that question.
He found that being asked the question did reduce the amount of
cheating, and whether the test subject recalled two commandments or ten
made no difference. At the end of the chapter, he lists the ten
commandments, only for some reason he lists the Catholic ten
commandments, not the ten from the Bible. (The Catholics
eliminated the one about idolatry and split coveting into two).
This is strange, since the author is Jewish.
