Are you predictably irrational?
According to the author Dan Ariely, we all are…
It may sound like the title of a bad date. But instead, it’s the tile of a book that explores the irrational way decisions are made.
You may be wondering how to predict irrationality. In addition, how do we use that understanding? Can we turn the tables on irrational decision making to make changes in our lives? Can we influence other people’s decisions with this knowledge?
Sit back, relax, and prepare to understand–amongst many things–why you went on that date to begin with.
…And how you could have changed the outcome…
CROWDSOURCED READING PROJECT #14
Predictably Irrational
SUMMARIZED BY Rob H.
Sometimes it feels like you’re doing everything right, but for some reason everything falls apart. The girl you’re interested in walks off, a business relationship falls apart, a perfect proposal is rejected. It’s frustrating, draining and a little demoralising when you see that you’ve done the right things every step of the way, but you just couldn’t close the deal.
The truth is, you might have done everything perfectly – but none the less, something has tripped you up. And that something is likely to be one of the many hidden forces that shape our decisions.
Imagine understanding how people are primed for decisions, and how you can prime
yourself (and others). Imagine being able to structure your offerings in the way that you can influence the final decisions. This, and why a 50c Aspirin can do what a penny Aspirin can’t, are just some of the insightful tricks of decision influence tackled in Dan Ariely’s Predictably Irrational: The Hidden Forces That Shape Our Decisions.
Ariely’s book, written in 2008, will challenge your assumptions about how you and the people you interact with make decisions. It will not only show you the biases that you’re falling prey to on a day to day basis, but how you can use those same biases to to influence others – and get more desirable outcomes.
One of the most interesting factors of this book is how intertwined all of the concepts are, and how you can gain a compound effect by using these techniques.
The Top Five Irrational Takeawways
1. Choice Presentation Influences Our Decision Making
We’d all like to think that we’re in total control of our decision making abilities, but the fact is that we aren’t. We’re at the mercy of Relativity of choice and asymmetry.
Irrationality In Theory
If we’re planning our honeymoon (all in good time, gents) and must pick from Paris (free breakfast), Rome (free breakfast) or Rome (no breakfast included), we are most likely to choose Rome (free breakfast).
The reason for this is because we’ve although been presented with three options, one is a decoy – Paris – because it cannot be directly compared to the other choices. As a result we remove it from our sphere of choice and select the best of the remaining two options.
Irrationality In The Real World
In the business world, it makes sense to create three potential offers for individuals. By creating two easily comparable options (one of which is better), and a third ‘decoy’ choice, you can give a client the best solution by indirectly influencing their selection. When the client starts thinking ‘How do I use this guy?’ instead of ‘do I use this this guy?’, the battle is half won.
Note: This can be entirely unethical in the wrong hands. I recommend you only use it for good, instead of evil.
2. Value Is Entirely Relative.
We purchase goods based on three factors; value, quality and availability. However, each of these factors is easily influenced through relative anchoring. The anchoring occurs in two different ways – through associated value, and through initial value.
Irrationality In Theory
Associated value occurs when something (or someone) is perceived to be high in value because of it’s visible association. To explain this point, Ariely talks of The Tahitian Black Pearl – a total flop when it was first put on the market. However, when he convinced a friend (the infamous gemstone dealer Harry Winston) to string them up inside his 5th Avenue Store Window and attach a ridiculously high price tag to them. The result? Their perceived value boomed because of their newly anchored association.
Initial value anchoring can easily be explained with a MacBook Pro. If the first computer you ever considered buying was a Macbook Pro for $2,500, your judgement of all future computers would be tied to this amount. They would be more expensive or less expensive based on your initial experience of the initial value.
Irrationality In The Real World
To gain value rapidly, it’s clear that your associations matter. If you want high social status, you need to associate with others of high social status and steal a bit of their frame. If you want to be powerful, then you can get started by associating yourself with other powerful people.
Alternatively, if you want to alter the perception of your charges as a service provider, it’s important to first create a value anchor. By saying “others in the field will charge $6,000 for this, which I feel is outrageous. I only charge $4,700” you make yourself seem affordable – after all, you don’t charge $6,000.
On the flip side, if you say “now, others in the field would try and tell you that this can be done to a high standard for just $6,000, but this is a case of you get what you pay for. For services, the cost is $13,700” you re-anchor the price of $6,000 as being equal to cheap and low quality – and your charge becomes more valuable in the process.
3. We HATE not being paid what we’re worth, but we’ll do work for free.
When we interact with others, we either do it in the frame of a market norm or a social norm. Market norms include wages, prices, rents, cost benefits, etc and social norms are simple requests that don’t require instant payback.
Irrationality In Theory
The best explanation of this is asking Lawyers to provide needy retirees with common services for a low cost of just $30. Naturally, the Lawyers felt that this was insulting compared to their normal rates (this is anchoring from The Fallacy Of Supply And Demand in action) and declined.
However, when asked to provide their services for free as a favour, the frame shifted from being a Market Frame to a Social Frame… and the lawyers accepted.
Irrationality In The Real World
Want someone to do it? Don’t use money – it’s an expensive motivator. Wherever possible invoke a social norm to influence someones behaviour. If you buy someone a gift, don’t talk about its cost (this includes drinks) as it becomes a sign of worth to the receiver and the giver.
Either ask for or give it as a favour, or work with market rates (preferably market rates that you anchored advantageously).
4. Emotions Help Us Make Decisions We Normally Wouldn’t
No big surprises here. Our decisions, no matter how much we try to deny it, are influenced by emotion. If we can use emotion to influence ourselves (or others) into making decisions, we can be more influential as a result.
Irrationality In Theory
Ariely and a friend, George Loewenstein, created a test to assess the influence of arousal on decision making. Armed with glad-wrapped laptops developed to stimulate sexual arousal distributed to young men, they identified a (rather unsurprising) truth – when stimulated, young men are more likely to take actions they normally wouldn’t.
Irrationality In The Real World
If you can drive yourself, or others, to take action by using strong emotions, do it. It’s a powerful way to override the brains analytical approach and inspire them to take a particular course of action. Powerful emotions include fear, anger and frustration.
5. We Can Stop Procrastination With The Right Motivators
A natural habit of people is to put off the work that they don’t want to do for as long as possible. For some, procrastination has even become an art form. In this section Ariely explores a few approaches that we could use to decrease procrastination and increase results.
Irrationality In Theory
We have two states from which we make decisions – the cold, analytical state and the hot, immediately satisfied state. Ariely states that proper motivators, such as deadlines and penalties, are effective at getting people to hit long-term goals or deadlines. They are even more effective when set by an authority figure.
Thus, to reduce procrastination you need to increase the stakes.
Irrationality In The Real World
Want to get something done? Have the task set by an authority figure or have a penalty in place for not achieving the goal. An example of this is Stickk.com – an online site for “setting the stakes” and deadlines. You can use a service like Stickk.com to bet that you’ll achieve your goal, and if you fail it can automatically pay a friend or donate it to a charity you hate.
Use deadlines and penalties to push yourself and get things done.
6. The Power Of Price
Price isn’t just an indicator of worth. It’s an indicator of the quality we will end up expecting. In this chapter, Ariely discusses the use of expensive placebos and whether or not they should hold consideration, as well as the mental relationship between monetary cost, role and perception.
Irrationality In Theory
One of the heuristics that we employ in our day to day life is price as a sign of quality, although this isn’t always the case. In this chapter we here the story of a 2003 study where more than one-third of patients who received antibiotics for their sore throat were found to actually have a viral infection… for which antibiotics does nothing (Side note – antibiotics are only good for bacterial infections, not viral infections).
That’s the kicker. The medication they paid for, and took, as a treatment for their throat actually had no effect. They just believed it did because of the price they paid.
Irrationality In The Real World
Matt Mullenweg, founder of WordPress and Automattic, has been quoted as saying “be a painkiller, not a vitamin.”
There’s a strong reason for this. Vitamins are nice to have, but painkillers will be paid for -even if they’re a placebo.
Your role isn’t to help people at a social gathering have more fun – it’s to overcome the awkwardness of the situation and make them feel at ease. Your job isn’t to help your business optimise the dollars that it’s already making – it’s to stop it losing dollars from the competition. By being perceived as a ‘painkiller’ you’ll be worth more, to more people.
TL;DR – PREDICTABLY IRRATIONAL IN A NUT SHELL
In life you’re either the selection or the selector, and in both instances you’re going to be at the mercy of the secret agents of influence. By understanding the way that yourself and others are affected by these secret agents, you stand a better chance of positioning yourself against then.
In this review, I’ve outlined what I believe are the top six takeaways from the book. Just implementing one of these could have a massive impact on your business, your ability to get things done, social life or even current relationship.
When you influence the options, you influence the outcome.
Predictably Irrational: The Hidden Forces That Shape Our Decisions by Ran Ariely