Are You Predictably Irrational?

If you randomly ask several strangers how rational they think they are, what do you think their response would be?

What would your response be?

Most people believe they are reasonably rational human beings.

However, in “Predictably Irrational”, American professor and author Dan Ariely challenges the long-standing belief that humans are fundamentally rational beings who make decisions in their best interest.

Instead, through a series of fascinating experiments and real-world examples, he reveals that we’re anything but rational.

As he shows, our decisions are shaped by invisible forces—cognitive biases and emotions—that consistently lead us astray.

What makes these irrational behaviours even more intriguing is their predictability. We tend to make the same errors repeatedly under similar circumstances.

In this blog, we will delve into the key lessons from Ariely’s book, illustrating how our minds play tricks on us and how understanding these forces can help us make better choices.

The Illusion of Free Choice

One of the foundational ideas Ariely explores is that our decisions are often not as free as we think.

He demonstrates this concept with the “decoy effect,” a tactic used to nudge people toward a particular choice by presenting an option designed to make another option seem more appealing.

For instance, in one of his studies, he examined how people responded to a subscription offer for “The Economist”. Participants were presented with three choices:

1. An online subscription for $59.

2. A print subscription for $125.

3. A print and online subscription for $125.

Interestingly, almost no one chose the print-only option.

However, its presence made the print-and-online bundle seem like a fantastic deal. Without the print-only option, most participants leaned toward the cheaper online subscription.

Ariely’s conclusion? Context matters!

Our choices are heavily influenced by the context in which they’re presented, even when we think we’re making independent decisions.

This insight is particularly relevant in marketing and advertising.

Companies leverage the decoy effect to steer customers toward higher-priced products or services, all while giving the illusion of choice.

By being aware of this phenomenon, we can pause and critically evaluate the options before us, ensuring we make decisions based on actual needs rather than psychological manipulation.

The Power of Anchoring

Another eye-opening concept in “Predictably Irrational” is anchoring, which refers to the tendency for individuals to depend heavily on the first piece of information they receive when making decisions.

Ariely illustrates this with a quirky experiment in which students bid on everyday items after writing down the last two digits of their Social Security numbers.

Astonishingly, students with higher digits bid significantly more than those with lower digits, even though their numbers were unrelated to the value of the items.

Anchoring has profound implications for consumer behaviour.

For example, when a product is initially priced high and later marked down, the original price is an anchor, making the discount seem more attractive.

It explains why sales and “limited-time offers” work so effectively.

Understanding anchoring can help us resist these tactics by encouraging us to assess a product’s value independently rather than being swayed by arbitrary reference points.

The Pain of Paying

As Ariely explains, money is not just a medium of exchange—it’s a psychological force that deeply influences our behavior.

One of the book’s most memorable experiments involves the concept of “pain of paying.”

He found that people are more reluctant to spend money when the payment is tangible (like cash) compared to intangible forms like credit cards.

Take the rise of subscription services as a real-world example.

Companies like Netflix and Spotify capitalise on the diminished pain of paying by using automatic deductions, which reduce the perceived cost of their services.

While this convenience benefits consumers, it can also lead to overspending, as we’re less likely to notice or question recurring expenses.

His advice here is straightforward: become more mindful of how and when money leaves your account. Setting up alerts or reviewing expenses regularly can help mitigate unnecessary spending.

The Influence of Social Norms

He also dives into the dichotomy between social and market norms, two frameworks that guide human behaviour.

Social norms revolve around relationships, trust, and community, while market norms are driven by monetary exchange.

Through his experiments, he reveals that blending the two can lead to unexpected consequences.

For instance, when people are asked to help a friend move and are offered pizza and beer, they will likely agree enthusiastically.

However, the offer might offend them if the same task is framed as a paid job with a low wage.

Why?

Because introducing money transforms the interaction from a social norm to a market norm, diminishing goodwill and intrinsic motivation.

This principle has significant implications for organisations and employers. Treating employees respectfully and fostering a sense of community often yields better results than purely financial incentives.

On a personal level, understanding this dynamic can help us navigate relationships and negotiations more effectively by aligning our approach with the appropriate norm.

The Cost of Zero

One of Ariely’s most engaging chapters revolves around the irresistible allure of “free.”

He describes an experiment in which participants overwhelmingly chose a free Hershey’s Kiss over a more expensive Lindt truffle, even though the truffle was a better deal in terms of quality and value.

This phenomenon, dubbed the “zero price effect,” highlights how the concept of “free” triggers an emotional response that clouds rational thinking.

Retailers have long exploited this tendency with strategies like “buy one, get one free” deals or free shipping thresholds.

While there’s nothing inherently wrong with taking advantage of such offers, Ariely encourages us to scrutinise whether these “free” perks genuinely align with our needs or merely tempt us into unnecessary purchases.

The Role of Expectations

Another powerful force that shapes our decisions is expectation.

Ariely’s experiments demonstrate how our beliefs can influence our experiences, often creating self-fulfilling prophecies.

In one study, participants who were told they were drinking an expensive wine rated it more enjoyable than a cheaper one—even when both wines were identical.

This phenomenon extends beyond wine to countless other areas, from brand loyalty to healthcare.

For example, people often perceive branded medications as more effective than generic ones, even though they contain the same active ingredients.

By being aware of the influence of expectations, we can make more objective evaluations, focusing on actual value rather than preconceived notions.

Self-Control and Procrastination

Ariely also tackles the universal struggle with self-control and procrastination.

Through his experiments with students and deadlines, he reveals that people perform better when external constraints or incentives are in place.

For instance, students who were allowed to set their own deadlines and made them binding performed as well as those with imposed deadlines.

However, those with complete flexibility often procrastinated and submitted lower-quality work.

This insight has practical applications in areas like goal setting and habit formation.

Whether adopting a new fitness routine or saving for retirement, creating external accountability, such as setting milestones or automating savings, can significantly boost success rates.

He suggests that the key is recognising our limitations and designing systems that counteract them.

Relativity: Why Everything Is Relative

Ariely’s exploration of relativity reveals that our decisions are often shaped by comparisons rather than absolute values.

For example, when choosing between a $100 shirt and a $50 shirt, the latter seems like a bargain. But introduce a $200 shirt into the mix; suddenly, the $100 shirt feels like a middle-ground option.

This principle explains why luxury brands display their most expensive items prominently; they make other high-priced items seem more reasonable by comparison.

Relativity also influences our personal lives, from the jobs we pursue to the homes we buy, as we constantly compare ourselves to others.

His advice?

Focus on your values and priorities rather than falling into the trap of relative comparisons.

Honesty and Dishonesty

One of the book’s most thought-provoking sections explores the factors that drive honesty and dishonesty.

Through a series of experiments, Ariely finds that people are more likely to cheat when the act feels disconnected from money or when others around them are cheating.

However, even minor reminders of ethical standards, such as signing a pledge, can significantly reduce dishonesty.

This insight has profound implications for everything from workplace culture to public policy.

Organisations can reduce unethical behaviour by fostering environments that promote transparency and accountability.

On a personal level, being mindful of these triggers can help us stay aligned with our values.

Lessons for a Better Life

Ariely doesn’t just highlight our flaws; he also offers practical solutions to overcome them. For instance:

1. Use pre-commitment tools to combat procrastination and impulsive behaviour.

2. Seek out objective comparisons rather than relying on relative judgments.

3. Be mindful of marketing tactics, such as anchoring and the decoy effect.

4. Embrace social norms in personal and professional relationships to foster goodwill and cooperation.

Conclusion

Dan Ariely’s “Predictably Irrational” is a fascinating exploration of the quirks and biases that govern human behaviour.

By dissecting our irrational tendencies, he sheds light on why we make certain choices and empowers us to make better ones.

His insights are as entertaining as they are enlightening, blending academic rigour with real-world relevance.

Understanding these hidden forces can help us become more thoughtful, deliberate, and, ultimately, wiser in our choices as we navigate a world of complex decisions.

Until next time, remember that you are not as rational as you think.

Dion Le Roux

References

1. Ariely, Dan. Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins, 2008.