Interview by Robin D. Schatz
March 13 (Bloomberg) — Behavioral economists are a fun- loving bunch, to judge from the intriguing new book “Predictably Irrational: The Hidden Forces That Shape Our Decisions.”
One moment author Dan Ariely is observing how sexually aroused male college students answer questions; the next he’s observing how the Ten Commandments affect the propensity to cheat or watching unsuspecting taste testers happily guzzle vinegar-spiked beer.
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By David Berreby
Published: March 14, 2008
For years, the ideology of free markets bestrode the world, bending politics as well as economics to its core assumption: market forces produce the best solution to any problem. But these days, even Bill Gates says capitalism’s work is “unsatisfactory” for one-third of humanity, and not even Hillary Clinton supports Bill Clinton’s 1990s trade pacts.
By Russ Juskalian, Special for USA TODAY
Can thinking about an arbitrary number influence how much you’re willing to pay for a computer keyboard, a bottle of wine or a box of chocolates? Apparently so – and the degree of influence may shock you.In Predictably Irrational, Dan Ariely, a professor at Massachusetts Institute of Technology’s Media Laboratory and the Sloan School of Management, put the question to the test in an experiment involving a group of MBA students.
The experiment began with students being asked to write down the last two digits of their Social Security number. When the experiment ended, it revealed a pattern – that students with Social Security numbers ending in the highest-ending digits (80-99) were willing to pay more for items (the wine, the chocolates, etc.) than students with the lowest-ending Social Security numbers (01-20) were willing to pay.
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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.”
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Review by Tim Harford
Published: February 23 2008 00:17 | Last updated: February 23 2008 00:17
Not long ago three professors, Daniel Ariely, Elie Ofek and Marco Bertini, set up a stall to hand out free cups of coffee at the Massachusetts Institute of Technology (MIT). In exchange, they asked patrons to tell them whether they liked the roast.
Ariely and his colleagues set up a table of condiments – milk and sugar, but also obscure offerings such as cloves and orange peel. Nobody ever sampled the unusual options, but they turned out to matter a great deal. Some days, the cloves and orange peel were presented in glass containers on a brushed-metal tray, on other days they were dumped in Styrofoam cups with hand-scrawled labels. The presentation of the “condiments-not-taken” turned out to make a big difference as to how MIT students thought the coffee tasted.
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If (as is often the case) talking about sex makes people more interested in having it, does that mean that the current talk about a recession could actually be creating one? Well, maybe.
Or so one general finding of behavioral economics would have us believe. With all this chatter about a recession, consumers might, for example, hold off on buying that new dishwasher because of the “bad economy,” or pass up the more expensive restaurant because “we’re in a recession.” Without any discussion about recession, we’re unlikely to change our pattern of behavior. But talking about it can be a force that affects our decisions and alters our consumption habits.What makes me think that we’re such creatures of habit? Consider the experience of eating a Godiva truffle: The chocolate is melting in your mouth, the aroma penetrates your nose, there is a small nut inside. . . . Now think about this familiar experience and try to determine how much it’s worth to you. A quarter? $0.50? $0.75? $1.25? $2.50? While the experience of eating a truffle is very familiar, figuring out what we would be willing to pay for it proves difficult. So what do we do when we make purchasing decisions? (more…)
Why do we buy a Toyota Prius but do not take as much care to make our homes more efficient?Don’t misunderstand me, I have nothing but admiration for the Toyota Prius. But let’s look at the numbers. Switching from a standard midsize car to the Prius can reduce CO2 emissions from 7.5 tons to 4.4 tons per year (a 3.1 savings).But consider this: A standard four-bedroom house occupied by four people in Massachusetts can produce 53 tons of CO2 a year. What if we took steps to make the home’s heating and cooling system more efficient, installed efficient lighting, used ENERGY STAR appliances, and took steps to reduce energy used for hot water? If we made all these changes, the same house could produce 30 tons of CO2 a year (savings of 23 tons).So why do we buy and proudly drive the Prius but do not spend nearly as much on making our home more efficient? (more…)
Ask people if they’d like a 15-cent Lindt truffle or a one-cent Hershey’s Kiss, and 73% buy the truffle. Drop a penny off the price of each – a 14 cent truffle or a free Hershey’s Kiss – and only 31% choose the Lindt. Is eating the chocolate you don’t really want worth saving a penny? Probably not. But in the economics of life, we often show bad judgment, like allotting too much value to things that are free. In Predictably Irrational, behavioral economist Dan Ariely goes for a fascinating romp through the science of decision-making that unmasks the ways that emotions, social norms, expectations and context lead us astray. Mixing anecdote and social-science experiment, he illustrates common problems, like the tendency to keep our options open, even when one is demonstrably better. Consider the MIT student who has a horrible time committing to one of her two suitors – despite her clear preference for one of them. And relativity gets us time and again: coffee in a nice setting tastes better; a person looks more attractive once a similar but less good-looking person enters the room. Understanding these irrationalities, Ariely writes, is the first step in overcoming them.
Dan Ariely is an MIT professor who served beer in a brewery and dressed in a waiter’s outfit as part of his research into decision making. A leading behavioral economist, Ariely has heightened abilities to observe what’s going on around him, from tiny details to the big picture. His uncommon findings and their wider applications are presented in “Predictably Irrational: The Hidden Forces that Shape Our Decisions” (HarperCollins). On Sunday, the book debuts on The New York Times Best-Seller list at No. 5.Ariely has written an engaging book of social science with an eclectic, original approach. His work draws on psychology and economics, and he leads readers through the back stories of his research. His personal back story, which he alludes to in the book’s introduction and elaborates on in an interview, is unforgettable.When he speaks of human irrationality, Ariely means the distance from perfection. He looks at why people are usually tempted by two-for-one specials when only one item is needed, might steal an occasional pencil from the office, have trouble turning down second helpings even when dieting or get stuck trying to eliminate possibilities in order to make decisions. (more…)
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. (more…)