Predictably Irrational: The Hidden Forces That Shape our Decisions

“Humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.”

In Chapter 1, Ariely introduces the first irrational influence on human behavior: relativity. People estimate value by examining an item in relation to others. Moreover, people focus on the items that are easily comparable and avoid those that are not. To Ariely, relativity helps people make numerous decisions, including which purchases to make, which home to buy, and whom to date and marry.

“If you stopped to think about this, it would not be clear whether you should be spending all this money on coffee at Starbucks instead of getting cheaper coffee at Dunkin’ Donuts or even free coffee at the office. But you don’t think about these trade-offs anymore. You’ve already made this decision many times in the past, so you now assume that this is the way you want to spend your money.”

Once a person makes a first decision, they use it as input for subsequent decisions. Switching from Dunkin’ Donuts to Starbucks is an example. While consumers initially found the price difference between the two retailers shocking, once they bought their first coffees at Starbucks, most created a habit. After several Starbucks purchases, they no longer thought about the price. In fact, they often started to purchase larger or fancier coffees at higher prices. Part of the success behind Starbucks is that its ambience is so different from Dunkin’ Donuts. This difference caused consumers to create a new anchor for Starbucks prices, influencing future coffee purchases.

“Perhaps it’s time to inventory the imprints and anchors in our own life. Even if they once were completely reasonable, are they still reasonable? Once the old choices are reconsidered, we can open ourselves up to new decisions—and the new opportunities of a new day. That seems to make sense.”

In Chapter 2, Ariely compares humans to goslings; they both imprint, or stick with a decision once it is made. In contrast to goslings, however, humans can reevaluate these initial decisions. By evaluating their vulnerabilities, people have the potential to change their decision-making process to make it more rational.

“In this case I gave Zoe her treat—three Hershey’s Kisses. But I did have a trick up my sleeve. I offered little Zoe a deal: a choice between getting a large Snickers bar in exchange for one of her Hershey’s Kisses, or getting the small Snickers bar for FREE! without giving up any Hershey’s Kisses.”

In this experiment, Ariely tested whether the lure of zero-cost extends beyond free prices to free exchanges. If Zoe, a trick-or-treater at Ariely’s home, was strictly rational, she would give up one Hershey kiss for the larger Snickers bar. The larger Snickers bar has an ounce more chocolate than the smaller Snickers bar, which makes it the better deal. FREE! blinded Zoe, who picked the smaller Snickers bar. FREE! is irresistible.

“So imagine two scenarios. Let’s say it’s the holidays, and two different neighbors invite you to their parties in the same week. You accept both invitations. In one case, you do the irrational thing and give Neighbor X a bottle of Bordeaux; for the second party you adopt the rational approach and give Neighbor Z $50 in cash. The following week, you need help moving a sofa. How comfortable would you be approaching each of the neighbors, and how do you think each would react to your request for a favor? The odds are that Neighbor X will step in to help. And Neighbor Z? Since you have already paid him once (to make and share dinner with you), his logical response to your request for help might be ‘Fine. How much will you pay me this time?’”

These two scenarios illustrate what happens when individuals mix social and market norms. According to market norms (or standard economics), gifts are never rational. People should be paid for their services. However, humans are social creatures, and cash payments are not always rational. When a host invites someone to dinner, a guest giving the host cash violates social norms. By following market norms in this situation, a guest, while thinking they are acting rationally, could harm their relationship with the host. Moreover, introducing cash might mean that the host no longer views the guest as part of their extended community. Instead, the host might assume all interactions with the guest will follow market norms.

“As it turns out, we are caring social animals, but when the rules of the game involve money, this tendency is muted.”

When items are free, customers think more about others. For example, when cookies are free, individuals will only take one or two because they think about how others will want some (which is why the chapter is titled, “The Power of a Free Cookie”). Financial transactions, in contrast, undermine social norms. If the product costs money, individuals will take more of it than when it was free. With economic exchanges, people focus on their own goals and care less about others.

“No matter how we looked at the numbers, it was clear that the magnitude of underprediction by the participants was substantial. Across the board, they revealed in their unaroused state that they themselves did not know what they were like aroused.”

Ariely’s experiment in Chapter 6 revealed that while humans, in a cold, rational state, think they know how they will act under emotionally piqued states, this is not the case. The author likens emotionally piqued states to Mr. Hyde, who represents the other half of Dr. Jekyll. Robert Louis Stevenson created Dr. Jekyll and Mr. Hyde in the late 1880s. Dr. Jekyll is a mild-mannered scientist, while Mr. Hyde is wildly passionate and murderous. Dr. Jekyll, like everyone, thinks he knows how to control himself, but he does not when Mr. Hyde makes an appearance.

“I began to imagine a credit card of a different kind—a self-control credit card that would let people restrict their own spending behavior. The users could decide in advance how much money they wanted to spend in each category, in every store, and in every time frame.”

The author presents an idea for how to curb one of humans’ worst quirks: impulsive spending. Since the Great Depression, Americans save far less, in part due to the explosion of consumer credit. To help Americans save more, Ariely recommends a customizable credit card where individuals can set the amount they would like to spend on various items and categories (e.g., groceries, clothes, appliances). This “self-control” credit card might help curb unnecessary spending. Ariely took this idea to several major banks. At the time of his writing the book, no bank had implemented it, since bankers and credit card companies make billions in interest from American credit cards. Implementing a “self-control” credit card, while beneficial to the public, would cut company profits.

“In order to overcome many types of human fallibility, I believe it’s useful to look for tricks that match immediate, powerful, and positive reinforcements with the not-so-pleasant steps we have to take toward our long-term objectives.”

Ariely found through his interferon treatment that delayed gratification makes it hard to stick to a behavioral change. This is especially true when the behavior includes initial negative outcomes. For Ariely, the interferon treatment always made him horrendously sick. This sickness (the immediate negative outcome) was key to his ultimate outcome (improved health) if he consistently took the interferon as prescribed. Ariely found a trick to help him get through the sickness: movies, which he loves. Unfortunately, he was the only one in his clinical group who found such a trick. The others did not complete the treatments. This real-life example shows the importance of adding positive reinforcement to help humans overcome the pain involved in reaching long-term objectives.

“In general, the students who did not own a ticket were willing to pay around $170 for one. The price they were willing to pay, as in William’s case, was tempered by alternative uses for the money (such as spending it in a sports bar for drinks and food). Those who owned a ticket, on the other hand, demanded about $2,400 for it. Like Joseph, they justified their price in terms of the importance of the experience and lifelong members it would create.”

This experiment uncovers one of the quirkiest aspects of human nature: ownership. Ariely and a colleague attempted to buy football tickets from student ticket holders (such as Joseph) and sell them to non-holders (such as William). Despite the students working equally hard to get a ticket, some simply could not because it was a lottery system. Contradicting traditional economics, ticket holders placed substantially greater value on the tickets than non-holders. This emotional chasm comes down to the fact that people overvalue what they own.

“Two of my friends adopted a child from China and told me this remarkable story. They went to China with 12 other couples. When they reached the orphanage, the director took each of the couples separately into a room and presented them with a daughter. When the couples reconvened the following morning, they all commented on the director’s wisdom: Somehow she knew exactly which little girl to give each couple. The matches were perfect. My friends felt the same way, but they also realized that the matches had been random.”

This example highlights another quirk of human behavior: People immediately become attached to things they consider theirs. The couples came to love the little girl who would become their daughter, not because of the director’s wisdom but because they already viewed the baby as theirs. They already pictured how she would fit into their lives. Ownership fundamentally shifts a person’s perspective. This is why most parents think their kids are more special and talented than others.

“Dana, another student of mine, had a similar problem—but hers centered on two boyfriends. She could dedicate her energy and passion to a person she had met recently and, she hoped, build an enduring relationship with him. Or she could continue to put time and effort into a previous relationship that was dying. She clearly liked the new boyfriend better than the former one—yet she couldn’t let the earlier relationship go.”

Humans have an irrational compulsion to keep as many doors open as possible, even when these opportunities hold no interest (as with Dana and her first boyfriend). Ariely’s experiments suggest that there are ultimately consequences to indecision; if Dana does not decide between the two boyfriends, she could lose the one she really loves. Closing doors is not easy, but Ariely urges readers to start consciously doing so.

“Since you have probably invested some money to purchase my wisdom in this book (not to mention time, and the other activities you have given up in the process), I should probably not readily admit that I wound up like the donkey, trying to discriminate between two very similar bales of hay. But I did.”

One powerful aspect of Predictably Irrational is Ariely’s personal stories. Readers might assume that Ariely is immune to irrationality since he studies human behavior. Ariely’s stories show that this is not the case, like his inability to pick between MIT and Stanford for a job. These irrational behaviors are part of human nature, but Ariely often emphasizes that people cannot give up trying to change. Much is at stake if they continually allow irrationality to dictate their decisions.

“Telling the participants about the vinegar after rather than before they tasted the beer doubled the number of participants who decided to add vinegar to their beer. For the participants in the ‘after’ condition, the beer with vinegar didn’t taste too bad the first time around (they apparently reasoned), and so they didn’t mind giving it another try.”

Ariely’s beer experiment highlights a key aspect of human nature: Expectations influence all aspects of life. If this were not the case, participants who tried the beer with and without the knowledge of the vinegar’s presence should come to the same conclusion about the beer. However, knowledge is not neutral, and it impacts perception. Expectations shape a person’s conclusions. Those who knew about the vinegar prior to drinking it, mostly preferred the unaltered beer. In contrast, those who did not know about the secret ingredient, preferred the beer with it after they found out. In fact, they were willing to add their own drops of vinegar to the beer to get the combination they most preferred.

“In our experiments, tasting beer without knowing about the vinegar, or learning about the vinegar after the beer was tasted, allowed the true flavor to come out. The same approach should be used to settle arguments: The perspective of each side is presented without the affiliation—the facts are revealed, but not which party took actions. This type of ‘blind’ condition might help us better recognize the truth.”

Expectations go beyond food preference—they enable people to make sense of the world. The danger is that they introduce bias into perception, since they are based on a person’s subjective experiences. Such biases are behind stereotypes. Ariely acknowledges that it is hard to strip away preconceptions and biases. However, people must at least acknowledge that everyone has biases. This might lead to more neutral policies or parties to solve some of society’s most pressing challenges of prejudice.

“When it comes to medicine, then, we learned that you get what you pay for.”

Ariely and colleagues probe the role price plays in the placebo effect, something that he notes is poorly understood. Through a series of experiments, they determined that price makes a difference. Patients believe they benefit more from a full-priced drug compared to a discount. This phenomenon has consequences for US healthcare. Since people irrationally believe higher-priced drugs are superior, there is the question of whether patients should be able to purchase these drugs instead of being forced to buy the cheaper, generic version.

“Placebos pose dilemmas for marketers, too. Their profession requires them to create perceived value. Hyping a product beyond what can be objectively proved is—depending on the degree of hype—stretching the truth or outright lying. But we’ve seen that the perception of value, in medicine, soft drinks, drugstores cosmetics, or cars, can become real value. If people actually get more satisfaction out of a product that has been hyped, has the marketer done anything worse than sell the sizzle along with the steak?”

Ariely poses several ethical dilemmas with placebos. Like physicians, marketers are also guilty of stretching the truth of a product’s value. However, if the hyped-up product provides greater benefit, the truth-stretching accomplishes something. This scenario highlights the blurry boundary between beliefs and reality.

“Aesop’s tale of ‘The Boy Who Cried Wolf’ is a powerful fable of lost trust. You recall the story: A boy shepherd tending a town’s livestock one day decides to have a little fun. ‘Wolf! Wolf!’ he cries, and immediately the townsmen come armed, ready to defend their precious animals. They find that they’ve been duped and return to the town. A few days later, the boy again cried ‘Wolf! Wolf!’ and again the townsmen come armed, ready to defend their livestock. Again, there is no wolf. Finally, when a wolf really does come, the boy’s desperate cries for help fall on deaf ears. The townsmen no longer trust him and leave him to fend off the wolf on his own. Consequently, the livestock fall prey to the wolf (in some versions of the story, the wolf eats the boy as well).”

While this fable was written in the late 1800s, it vividly portrays two contemporary moral issues. The first moral is that people are willing to forgive some lies; consumers understand that ads embellish the value of products. However, when businesses continuously lie to the public, mistrust deepens. It also has ripple effects on other similar organizations and eventually the rest of society. The second moral is that once trust is broken, it is difficult to restore. Businesses will need to make targeted efforts to rebuild public trust.

“What especially impressed me about the experiment with the Ten Commandments was that the students who could remember only one or two Commandments were as affected by them as the students who remembered nearly all ten.”

After demonstrating that humans will cheat when given the opportunity, Ariely ponders whether there is a cure for this behavior. In one experimental setting, he had two groups of participants, each group with a unique condition. Prior to administering a math test to participants, Ariely asked one group to recall 10 books they read in high school. He asked the other group to recall as many of the Ten Commandments as they could remember. These two groups were both given the opportunity to cheat on their math quiz. The students who had to recall the Ten Commandments cheated less than those who recalled their high school books. These findings suggest that humans’ innate desire to cheat might be tempered by moral benchmarks.

“This decline in professionalism is everywhere.”

In Ariely’s quest to determine if there is a cure for dishonesty, he looks at nonreligious moral benchmarks, such as professional oaths. He finds that many professional organizations, including for lawyers, doctors, geologists, and professional ethicists, have been dismantled. These oaths’ disappearance correlates with unethical behavior, and Ariely believes the relationship is causal. While these professionals still occasionally swear oaths (e.g., when they enter their profession) or make statements of adherence to a code of ethics, Ariely believes that, in order to be effective, oaths must be recalled at the time of temptation.

“And that’s my point: cheating is a lot easier when it’s a step removed from money.”

One of the book’s central tenets is that cash is strange. While the author discusses evidence that shows people cheat when given the opportunity, he also demonstrates that people cheat less when money is involved. This might be partly because people are primed to view money as an honor code. Most US currency has “In God We Trust,” faces of important founding figures, and “The United States of America.” These elements make the money seem like a contract. In addition to this symbolism, it is harder to rationalize dishonesty when stealing cash than it is when stealing pens from work or Cokes from the fridge.

“In one study, we found that when people give receipts to their administrative assistants to submit, they are then one additional step removed from the dishonest act, and hence more likely to slip in questionable receipts.”

It’s easier to steal nonmonetary items. Because the items aren’t cash, and no one was hurt, the theft may not seem as dishonest. For example, the person submitting the receipts does not view their actions as stealing from the company, when in fact they are. By further removing oneself from money, one dampens their ability to question the immorality of their actions.

“When people order food and drinks, they seem to have two goals: to order what they will enjoy most and to portray themselves in a positive light in the eyes of their friends. The problem is that once they order, say, the food, they may be stuck with a dish they don’t like—a situation they often regret.”

According to traditional economic theory, people know all the key pieces of information related to their decision and, therefore, make the optimal decision. However, if people were truly rational, then they would always order food and drinks based on their preferences and not how they think their friends will perceive their choices.