10 Ideas You Should Know From: Predictably Irrational by Dan Ariely
/The 10 Big Ideas:
Guide people to what they went
Most decisions are made in a relatively sense – need to frame the choices
Stop wanting more because you have more; need to be deliberate about your choice
We anchor to mindless figures
Understand social vs monetary relationships
Importance of pre-committment
Ownership distorts your ability to make rational choices
There is an incredible cost of keeping many options open
Presentation matters
People cheat more when cash isn’t involved
My Highlights from the Book:
Guide people to what they want:
Most people don’t know what they want unless they see it in context.
Most decisions are made in a relatively sense – need to frame the choices:
RELATIVITY IS (RELATIVELY) easy to understand. But there’s one aspect of relativity that consistently trips us up. It’s this: we not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable—and avoid comparing things that cannot be compared easily.
Stop wanting more because you have more; need to be deliberate about your choice:
That’s a lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity.
You might begin by questioning that habit. How did it begin? Second, ask yourself what amount of pleasure you will be getting out of it. Is the pleasure as much as you thought you would get? Could you cut back a little and better spend the remaining money on something else? With everything you do, in fact, you should train yourself to question your repeated behaviors.
We anchor to mindless figures:
The existence of what we called arbitrary coherence. The basic idea of arbitrary coherence is this: although initial prices (such as the price of Assael’s pearls) are “arbitrary,” once those prices are established in our minds they will shape not only present prices but also future prices (this makes them “coherent”). So, would thinking about one’s social security number be enough to create an anchor? And would that initial anchor have a long-term influence?
Understand social vs monetary relationships:
For example, what happens when a customer’s check bounces? If the relationship is based on market norms, the bank charges a fee, and the customer shakes it off. Business is business. While the fee is annoying, it’s nonetheless acceptable. In a social relationship, however, a hefty late fee—rather than a friendly call from the manager or an automatic fee waiver—is not only a relationship-killer; it’s a stab in the back. Consumers will take personal offense. They’ll leave the bank angry and spend hours complaining to their friends about this awful bank. After all, this was a relationship framed as a social exchange. No matter how many cookies, slogans, and tokens of friendship a bank provides, one violation of the social exchange means that the consumer is back to the market exchange. It can happen that quickly.
If you’re a company, my advice is to remember that you can’t have it both ways. You can’t treat your customers like family one moment and then treat them impersonally—or, even worse, as a nuisance or a competitor
As it turns out, we are caring social animals, but when the rules of the game involve money, this tendency is muted.
Importance of pre-commitment:
But the biggest revelation is that simply offering the students a tool by which they could precommit to deadlines helped them achieve better grades.
Ownership distorts your ability to make rational choices:
OWNERSHIP ALSO HAS what I’d call “peculiarities.” For one, the more work you put into something, the more ownership you begin to feel for it. Think about the last time you assembled some furniture. Figuring out which piece goes where and which screw fits into which hole boosts the feeling of ownership
My own approach is to try to view all transactions (particularly large ones) as if I were a nonowner…
There is an incredible cost of keeping many options open:
In the context of today’s world, we work just as feverishly to keep all our options open. We buy the expandable computer system, just in case we need all those high-tech bells and whistles.
We might not always be aware of it, but in every case we give something up for those options. We end up with a computer that has more functions than we need, or a stereo with an unnecessarily expensive warranty. And in the case of our kids, we give up their time and ours—and the chance that they could become really good at one activity—in trying to give them some experience in a large range of activities. In running back and forth among the things that might be important, we forget to spend enough time on what really is important. It’s a fool’s game, and one that we are remarkably adept at playing.
In a modern democracy, he said, people are beset not by a lack of opportunity, but by a dizzying abundance of it.
What we need is to consciously start closing some of our doors. Small doors, of course, are rather easy to close. We can easily strike names off our holiday card lists or omit the tae kwon do from our daughter’s string of activities.
Presentation matters:
Finally, don’t underestimate the power of presentation. There’s a reason that learning to present food artfully on the plate is as important in culinary school as learning to grill and fry. Even when you buy take-out, try removing the Styrofoam packaging and placing the food on some nice dishes and garnishing it (especially if you have company); this can make all the difference.
People cheat more when cash isn’t involved:
When we look at the world around us, much of the dishonesty we see involves cheating that is one step removed from cash. Companies cheat with their accounting practices; executives cheat by using backdated stock options; lobbyists cheat by underwriting parties for politicians; drug companies cheat by sending doctors and their wives off on posh vacations. To be sure, these people don’t cheat with cold cash (except occasionally). And that’s my point: cheating is a lot easier when it’s a step removed from money.
When the medium of exchange is nonmonetary, our ability to rationalize increases by leaps and bounds.