Predictably Irrational: The Hidden Forces That Shape our Decisions

Predictably Irrational: The Hidden Forces That Shape our Decisions is a nonfiction book written by Dan Ariely, a professor and author. Through scientific experiments and anecdotes, Ariely illustrates how humans are predictably irrational, a key tenet of behavioral economics. Ariely became interested in studying human behavior after an accident left him unable to participate in the same activities as family, friends, and society. From his position of temporary social alienation, he observed others as an outsider and began to wonder why humans do the things they do. One of the main lessons of Predictably Irrational is that there are forces, tied to our brain’s wiring, that deeply influence behavior. Most people fail to recognize these forces, causing them to repeat the same mistakes.

While the book was originally written in 2008, Ariely published a revised and expanded edition in 2010 with Harper Perennial. The latter edition is the basis for this guide.

Summary

Following the Introduction, Ariely details the various influences on human behavior as well as how a person might overcome some of these forces. Chapters 1 and 2 explore one such influence: the human lack of an internal meter for evaluating an item’s worth. Ariely suggests people’s decisions are based on an item’s comparability—or relativity—to other items. He then expands on the idea of relativity, presenting evidence for how humans anchor to initial prices and use these first impressions as a reference point for future similar items; this influences subsequent decisions (an idea known as arbitrary coherence). Despite humans’ desire for rational decisions, many decisions stem from first impressions and gut feelings.

Chapter 3 highlights that humans also get an emotional charge from FREE! items, regardless of whether those items are products or money. Gravitating toward a FREE! item is not inherently bad, but it becomes irrational when someone picks the FREE! item over a better option (such as choosing a free $10 gift certificate over a $20 gift certificate for seven dollars). Chapter 4 addresses something even more troublesome: when people insert money into situations that operate under social rather than market norms; the former norms require no money, while the latter do. Mixing these norms yields unexpected negative results and often damages social relationships.

Chapters 5 and 6 explore how financial transactions and high emotional states disrupt social norms, or the unwritten rules that help people navigate social interactions. For example, when offered free homemade cookies at work, a person will take one or two, knowing that colleagues might want some—however, if a coworker asks if someone wants to purchase these cookies, that person will take many more; people become selfish when money is introduced into social exchanges. Emotionally piqued states also trample social norms. Not only do people act differently in these high emotional states, but, when they are not in these states, they also fail to predict how such emotions will influence them.

Chapters 7 through 9 focus on the costs of predictably irrational behaviors. The desire for short-term gains over long-term benefits (procrastination) leads a person to save less, check email too frequently, rush to complete assignments, fail to get health exams on a regular basis, and so on. People also overvalue their belongings and fear giving them up, believing they will lose the memories and experiences associated with those belongings. Individuals also have an irrational compulsion to keep as many opportunities open as possible, even when these open doors hold little interest or actual value.

Chapters 10 and 11 address expectation, a force that changes people’s appreciation and perception of experiences, including even their food preferences. Expectations are biased since they are based on perception and not reality, and this bias often leads to serious conflict. Expectations affect both subjective and e experiences. Placebos exemplify the power of expectation, although price can change a placebo’s perceived efficacy.

The closing three chapters look at how public trust is eroding alongside humans’ faulty internal honesty monitor. With the support of several experiments’ findings, Ariely asserts that public mistrust runs deep. While people care deeply about their own and others’ honesty, they also have no problem cheating when given the opportunity—although money increases honesty and deters cheating. Ariely presents one final experiment to drive home that humans are predictably irrational and articulates the difference between traditional economic theory and behavioral economics.

While most of his book acknowledges human shortcomings, Ariely also believes there is a silver lining: Mistakes are opportunities for improvement (Ariely refers to these opportunities as “free lunches”). He discusses some strategies to overcome predictably irrational behavior, including incorporating commitment mechanisms to hold oneself more accountable, acknowledging that everyone is biased, and adding moral benchmarks to increase honesty. Ariely encourages the reader to reflect on how they might make better decisions. For him, the idea of “free lunches” is the most exciting part of his research.