Re: Predictably Irrational

I recently read a profile of Krugman in the New Yorker, which said that economists assume that people are rational economic actors because you can be irrational in too many ways. Irrationality is not predictable.  Predictably Irrational, by Daniel Ariely makes the case that it is.

Like Nudge, this is an entertaining, clearly written book, which describes strong patterns in the way most people make decisions, not the way we wish or think we do.

  • Most people are strongly influenced by context, even inappropriate ones.
  • Most people go nuts for FREE! things
  • Social exchanges have vastly different rules than the money economy.
  • Strong emotions and sexual arousal can overwhelm our good sense.
  • Most people put off things that won’t affect us immediately.
  • Most people put a higher value on what we own.
  • Most people have trouble letting go of options, even if we no longer want them.
  • Most people are generally honest, but will cheat a little given the chance.
  • Most people are more likely to cheat brazenly when money isn’t involved.

The book begins with the story of his treatment for severe burns. He tried to convince his nurses that pulling the bandages off slowly would have caused less suffering. They countered with You left out the suffering we feel inflicting suffering, but maybe you have a point. It’s a gripping story, but I’m not entirely sure what it has to do with the main thrust of the book.

The chapters describing how people make choices are very interesting. For example, when given a choice of three similar things, most people will go for the middle choice. If two of the three are more similar to each other, people will throw out the third and pick between the two.

I really liked the discussion of the collisions between social norms and market norms. People love to help others. You can easily get someone to help you carry something heavy, but if you offer money they become less eager. If you do something for free, it’s because you’re friends or family or neighbors, within the social network. Any repayment must be in kind; if money enters the picture, you might never be forgiven. Some big companies have tried to exploit social norms with customers and employees. Unfortunately (or if you think this a bad idea, fortunately) the first time you betray their trust, you’ll never get them back on your side.

The chapter about procrastination got my attention. Any discussion of procrastination gets my attention. The book describes attempts to let students control deadlines on papers. In one class, they were allowed to commit to any timeline, even turning all three papers at once. They were given a tool to help them plan their deadlines. Another class was told the only deadline was the end of the semester; they could turn their papers in at any point. The third was given the classic equally spaced imposed deadlines. The class with the imposed deadlines did best. A close second were students allowed to set deadlines who had enough self-knowledge to set equally spaced deadlines. So I tried to set myself some deadlines. It is not working for me at all.

Much of the latter half of the book don’t work for me, either. For instance, one chapter is devoted to a completely unsurprising study that shows the young men in the throes of arousal are far more likely to think it’s a good idea to engage in weird, immoral, or unsafe sexual acts. Also the discussion of placebo effects seem only distantly related. The experiments attempting to manipulate expectations and behavior are hard to believe.

When discussing cheating, the author seems honestly puzzled that we feel differently about money than we do about objects. Money is an abstraction, not an object. It’s not the same. Money is watched more closely and more exactly. Barter and favor exchanges can never be exactly equitable. Maybe that’s why they are almost exclusively confined to the social domain. You need the trust of the social network to count on the expectation of some kind of return somewhere down the road.

Even when you start arguing with the book (as I just did), it’s worth thinking about its claims.  And you can’t argue with its conclusion: the more aware we are of how we might be influenced, the more prepared we are to discount those influences and choose more wisely.