Predictably Irrational

The Book in Three Sentences

• Many of our behaviors are misguided.
• But they’re not random; they’re systematic and predictable.
• By recognizing our irrational patterns, we can make better decisions in life and business.

The Five Big Ideas

• We tend to focus on what we may lose, rather than what we may gain.
• With everything you do, you should train yourself to question your repeated behaviors.
• We assume other people will see monetary transactions from the same perspective as we do.
• People will work more for a cause than for cash.
• Giving up on our long-term goals for immediate gratification is procrastination.

Predictably Irrational Summary

• “Humans rarely choose things in absolute terms.”
• We tend to focus on the relative advantage of one thing over another, and estimate value accordingly.
• “Most people don’t know what they want unless they see it in context.”
• Gregg Rapp, a restaurant consultant, discovered high-priced entrées on the menu boost revenue for the restaurant—even if no one buys them. Why? Because even though people generally won’t buy the most expensive dish on the menu, they will order the second most expensive dish.
• “We are always looking at the things around us in relation to others.”
• “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.”
• “The more we have, the more we want. And the only cure is to break the cycle of relativity.”
• “Once we buy a new product at a particular price, we become anchored to that price.”
• “The basic idea of arbitrary coherence is this: although initial prices 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’).”
• “Initial prices are largely ‘arbitrary’ and can be influenced by responses to random questions; but once those prices are established in our minds, they shape not only what we are willing to pay for an item, but also how much we are willing to pay for related products (this makes them coherent).”
• Price tags become anchors when we contemplate buying a product or service at that particular price.
• “The first anchor influences not only the immediate buying decision but many others that follow.”
• Herding happens when we assume that something is good (or bad) on the basis of other people’s previous behavior, and our own actions follow suit.
• Self-herding happens when we believe something is good (or bad) on the basis of our own previous behavior.
• To improve an irrational behavior, ask yourself, “How did it begin? Second, ask yourself, “What amount of pleasure will I be getting out of it. Is the pleasure as much as I thought I would get?”
• With everything you do, you should train yourself to question your repeated behaviors.

Ariely on decision-making:

We should also pay particular attention to the first decision we make in what is going to be a long stream of decisions (about clothing, food, etc.). When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention.

We should also pay particular attention to the first decision we make in what is going to be a long stream of decisions (about clothing, food, etc.). When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention.

• “The sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions—not at all a reflection of our true preferences or our level of demand.”
• According to Margaret Clark, Judson Mills, and Alan Fiske, we live simultaneously in two different worlds—one where social norms prevail, and the other where market norms make the rules.
• People will work more for a cause than for cash.
• “No one is offended by a small gift, because even small gifts keep us in the social exchange world and away from market norms.”
• “When a social norm collides with a market norm, the social norm goes away for a long time.”
• “To make informed decisions we need to somehow experience and understand the emotional state we will be in at the other side of the experience. Learning how to bridge this gap is essential to making some of the important decisions of our lives.”
• Giving up on our long-term goals for immediate gratification is procrastination.
• When Ariely offered his students a tool by which they could pre commit to deadlines, they achieved better grades.
• A good course of action is to give people an opportunity to commit upfront to their preferred path of action.
• The endowment effect is our tendency to value what we own more than other people do.
• Our aversion to loss is a strong emotion and one that sometimes causes us to make bad decisions.
• We assume other people will see monetary transactions from the same perspective as we do.
• The more work you put into something, the more ownership you begin to feel for it.
• We can begin to feel ownership even before we own something (this applies to points of view, too).
• Given a simple setup and a clear goal, all of us are quite adept at pursuing the source of our satisfaction.
• “Research on stereotypes shows not only that we react differently when we have a stereotype of a certain group of people, but also that stereotyped people themselves react differently when they are aware of the label that they are forced to wear (in psychological parlance, they are “primed” with this label).”
• “Since people engage in a cost-benefit analysis with regard to honesty, they can also engage in a cost-benefit analysis to be dishonest.”
• “When we are removed from any benchmarks of ethical thought, we tend to stray into dishonesty. But if we are reminded of morality at the moment we are tempted, then we are much more likely to be honest.”
• “Cheating is a lot easier when it’s a step removed from money.”
• “People are sometimes willing to sacrifice the pleasure they get from a particular consumption experience in order to project a certain image to others.”

Recommended Reading

If you like Predictably Irrational, you may also enjoy the following books:

• Contagious: Why Things Catch On by Jonah Berger
• Drive: The Surprising Truth About What Motivates Us by Daniel H. Pink
• To Sell Is Human: The Surprising Truth About Persuading, Convincing, and Influencing Others by Daniel H Pink

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