Freakonomics and Predictably Irrational

March 9, 2008 BY danariely

From time to time people ask me about the relationship between Predictably Irrational and Freakonomics.

To start with, Freakonomics has a single-word title, and one that is the authors’ own creation — which clearly shows that Levitt and Dubner are more imaginative and creative.

Titles aside, the fundamental difference is that whereas Freakonomics shows how the world works according to the principles of rationality, particularly in places where we don’t expect it (real-estate brokers, Sumo wrestlers, teachers, etc.). Predictably Irrational is about our irrationalities — the places where people think they behave rationally but, in fact, don’t. From this perspective, you might want to consider Predictably Irrational to be a stepbrother of Freakonomics — examining how the world works (in places where we expect rationality), according to the principles of irrationality.

Despite this sharp difference, I think that the two books are more complementary and compatible than one might initially expect. In Freakonomics the main point is that incentives matter and that people react to these incentives (real-estate brokers treat their own homes and the homes of their clients differently because it is in their best interest to behave this way, teachers cheat if their financial future depends on it, etc). While there is no question that people are influenced by their incentives, the perspective in Predictably Irrational is that there are other forces in addition to incentives that are involved (emotions, social norms, expectations, inferences, etc.), and that only by incorporating these elements into the picture as well, will we be able to understand and predict human behavior.

While Freakonomics describes some of the motivations for human behavior (while leaving some out), so does Predictably Irrational.One perspective is to look at whether there is any water in the glass, and the other is to test whether there is more space in the glass — when in fact the glass is partially full (or empty). This is why I consider the two books to be complementary.

Of course the larger question is: Which of the two approaches (standard economics or behavioral economics) explains more of human behavior? This is not a question that we have a satisfying (or even remotely satisfying) answer for at this point in time.