Anti-economist Dan Ariely says people act in predictably foolish ways

Joseph Brean, National Post Published: Saturday, February 23, 2008

The Martian scientist who descends to Earth to bring fresh perspective to human foibles is a common conceit in everything from anthropology to philosophy, but few scholars ever get to be one.

Dan Ariely, head of behavioural economics at MIT and a fellow of the Institute for Advanced Research at Princeton, came close.

As a teenager in Israel, the accidental explosion of a magnesium flare, used to illuminate battlefields, left him severely burned over 70% of his body, and doomed him to years of painful convalescence.

“I was taken out of the standard life,” he said in an interview yesterday. “I started looking at everything as strange. Why do we hold glasses like this? Why do we give people compliments? Everything was all of a sudden strange. I felt as if I was like a little alien coming and looking at things in a new perspective, and not understanding.”

One result of this long-healed injury (though the scars remain) is Predictably Irrational, a new book in which the anti-economist overturns established wisdom on everything from free stuff (which can be costly) to the oft-broken law of supply and demand.

Through a series of experiments on his students and the public, about their judgments on everything from the value of chocolates to the attractiveness of their classmates (a collaborative paper with the producers of the HotOrNot.com Web site is to be published next month in Psychological Science), he makes the case that consumers are not the rational actors upon which classical economics is built.

To be blunt, they often seem downright stupid, but in a strangely systematic way.

“The fact that I do all my research to show that it’s failed, doesn’t mean I don’t love economics. My quibble with economics only comes from when it comes to making recommendations of how we should design life,” he said.

To illustrate the problem with the traditional understanding of supply and demand, for example, he offers the thought experiment of a doubling in the price of milk and a halving in the price of alcohol, combined with total societal amnesia for what these drinks used to cost. Classical economics says milk consumption will go down and alcohol consumption will go up. But Prof. Ariely thinks consumption of both would stay roughly the same, because people do not have a clear, innate understanding of what things are worth, and so without a comparison they can remember, the price change would not affect consumption.

This inability to judge objective value explains why people will choose a good 50¢ chocolate over a bad 5¢ one, but they will take a bad free one over a good 45¢ one.

Prof. Ariely’s research — in the tradition of Freakonomics — shows we are poor appraisers of our own pleasures, unable to judge something’s value unless we know what similar things cost.

He compares the thought process of a consumer to a pilot landing at night; he wants lights on both sides of the runway. That is why a good salesman who wants to sell a certain model of toaster will ensure there is both a cheaper and a more expensive model on display; the other two serve as decoys, to offer a comparison, and to give the illusion of context.

Predictably Irrational has an unfortunate tendency to read like a shopping manual for someone who has never bought anything before. At other times, it seems like Prof. Ariely has gone to a lot of trouble to prove that, when it comes to consumer spending, people are idiots, which everyone already knows.

But his claim is deeper than some of the silly results and the sometimes awkward methodology. It is not only that people are irrational and easily manipulated, but also that they are predictably so. The predictions, especially as they relate to such things as the Clinton/Obama electoral race, are compelling.

“We’ve done research on dating recently, and what we basically found is that when people know very little about the other person, they fill the gaps in over-optimistic ways,” Prof. Ariely said. “As a consequence, the less you know about people, the more inflated your expectations are. And I think that’s exactly what’s happening to Obama. Now, what happens with dating is that people know so little, their expectations are very high, and then the first time they see something they don’t like, it escalates downhill from then on. That’s actually my big fear [about Obama], that the honeymoon period would be extremely short,” he said. (Personally, he would vote Clinton in order to see Bill back in the White House.)

The book has some distracting spelling mistakes (“Coliseum,” “Cotes du Rhoone”) and the writing is occasionally weighed down by the clunking jokes and the eager condescension that scientists sometimes use on lay people (he suggests readers “pause at the end of each chapter,” as if that hadn’t occurred to us). But he illustrates his ideas with lighthearted quotes from Crocodile Dundee (“That’s not a knife.”) and Woody Allen (“The most expensive sex is free sex.”) and thus redeems himself.

As with most writing by scientists, the impact of Predictably Irrational owes more to the ideas than the prose, and it is lamentably light on reflection. Although he tells the story of the flare explosion in the introduction, he only returns to discuss its effects in a single footnote. He expanded yesterday in the interview, explaining that his scars have often led people to see him as more trustworthy, with his painful secrets so prominently displayed. But on first glance, he added, people’s judgments can be harsh.

“When people see someone who is injured, the initial assumption is also to think they’re retarded,” he said, recalling his early years at university, when he was first exposed to the work of his intellectual mentor, the Nobel Prize-winner Daniel Kahneman.

“I felt the need to prove to people that I wasn’t an idiot,” he said.

It is ironic that he has done so by showing that, when it comes to our purchases, so many of us can be.