Predictably Irrational: Insights on Human Behavior

Insights on Human Behavior from Dan Arieli's Predictably Irrational

The hidden forces that shape our decisions.

This book challenges the common misconception that humans behave in fundamentally rational ways. Our behaviors are in fact, systematic & predictable- predictably irrational. In becoming aware of our irrational patterns, we can make better choices in life & business, allowing us to live better & happier lives.

“The more we have, the more we want.
And the only cure is to break the cycle of relativity.”
-Dan Ariely-

About the author: James B. Duke Professor of Psychology & Behavioral Economics at Duke University. He earned a Ph.D. in cognitive psychology & a Ph.D. in business administration. A number of his works have been featured in a variety of scholarly journals in psychology, economics, neuroscience, medicine & business. His work has also been published in the New York Times, the Wall Street Journal & so on.

 1. Relativity

“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.”

When making decisions, humans tend to weigh their options & focus on the relative advantage of one thing over another. So, if decisions are made with comparative analysis, give those making decisions clear options to guide them towards making a quicker & more informed decision. Or, for the sake of your own happiness, try and stop making irrational comparisons altogether.

 For example:
 Option 1: Trip to Paris with breakfast
 Option 2: Trip to Rome with breakfast
 Option 3: Trip to Paris without breakfast

When presented with these 3 options, humans tend to choose option 1 due to the presence of a related inferior option (option 3).

To counteract relative analysis, weigh the costs & benefits of each option presented to you independently.

 2. Fear of Loss

“Our aversion to loss is a strong emotion, one that sometimes causes us to make bad decisions.“

We tend to focus on what we may lose, rather than what we may gain. We are so scared of losing things that we forget what we can gain by giving them up. Keeping more doors open eventually closes the most doors, & causes few new doors to open up.

To combat the fear of loss, shift your focus to what may benefit you from a situation.

 3. The Power of "FREE"

“Most transactions have an upside & a downside, but when something is free we forget the downside. “

Free items are one of the most influential ways to trigger behavior. Due to the zero price effect, “FREE” causes irrational excitement. "FREE" makes us perceive what is being offered as immensely more valuable than it actually is. Being that we are loss-averse, as we mentioned previously, free items do not concern humans with the possibility of loss.

 For example:
 Amazon offered "Free Shipping" & sales increased universally. When an item is free, there is no visible possibility of loss.

 4. Overvaluing Ownership

“Our propensity to overvalue what we own is a basic human bias, and it reflects a more general tendency to fall in love with, and be overly optimistic about, anything that has to do with ourselves.“

The endowment effect means that when we own something, we begin to value it more than others do. The more work you put into something, the more ownership you begin to feel for it (The "IKEA effect").

 For example:
 Duke students who entered a lottery for basketball game tickets valued their tickets differently.
 If they did not have tickets, they would pay $170 for them.
 If they had tickets, they would sell them for $2,400.

To counteract the endowment effect, try to view all transactions as a non-owner. Maybe we can realize that we have such biases and listen more carefully to the advice and feedback we get from others.

 5. Make Better Choices

“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.”

 We should give more attention to & question our repeated behaviors.
 To improve an irrational behavior, ask yourself:
 “How did it begin?”
 “What amount of pleasure will I be getting out of it?”
 “Is the pleasure as much as I thought I would get?”