Making the Same Mistake Twice–And Why a Smart Buy Probably Isn’t
BY EMILY BOBROW | FEBRUARY 15, 2008 | PREDICTABLY IRRATIONAL: THE HIDDEN FORCES THAT SHAPE OUR DECISIONS

I missed the deadline with this book review. Although I had plenty of time to work on it (having pitched it in December), I procrastinated and ultimately pulled an all-nighter to get it in. This sacrificed my personal utility–that is, the amount of satisfaction I have derived from this assignment. Clearly, this was not a very rational thing to do.
Why on earth did I do it? According to Predictably Irrational, a fascinating new book of behavioral economics by Dan Ariely, to dither is human. “We have problems with self-control, related to immediate and delayed gratification,” he writes. We’re inclined to put off work, even if this makes little sense in light of our long-term goals.

We also have trouble saving money, and we rarely know what things should cost (and so we’re easily manipulated as consumers). We make all sorts of mistakes, and we make them often. In short, we’re not nearly as efficient at calculating our best choices as standard economists would like to believe.
But Mr. Ariely, a professor at M.I.T., makes a convincing case that our errors of judgment, though “irrational” (i.e., influenced by emotions, irrelevant cues and shortsightedness), are also consistent and worthy of closer scrutiny. “Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?” he asks. He joins a growing band of behavioral economists, all of whom seem to be busily telling us what we don’t know about ourselves (often in clever, readable books). Mr. Ariely’s spin is positive: Once we learn what we’re doing wrong, we can devise plans to correct these missteps. In some ways this is a self-help book, swaddled in empirical data.
For example, why might I buy the same scarf for either $10 or $100? If I first saw the scarf on the street, described as “cashmink” on a cluttered table, I could safely presume from this context that its quality was low. But if I saw the same scarf in a boutique, surrounded by elegant garments at excruciating prices, I might then discern its finer qualities and be convinced to pay a much higher price. “We don’t have an internal value meter that tells us how much things are worth,” Mr. Ariely explains. Instead, we rely on context and relativity (is this scarf better or worse than the scarf sitting next to it?), which makes us gullible consumers. Often we let a price give an object its value, not the other way around.
This is how the black pearl became a luxury good. We learn that James Assael, a postwar “pearl king,” had little luck in unloading the gunmetal fruits of black-lipped oysters when he first introduced them to America in the 1970’s. But then he convinced his buddy Harry Winston to display a string of these lovelies in his Fifth Avenue window, together with an outrageous price tag. The rest is history.
In a similar vein, a recent study revealed that inflating the price of a bottle of wine enhances the pleasure of the person drinking it.

We use the price as a measure of the wine’s value, and consider the bouquet’s merits accordingly. Conversely, underpricing a bottle of wine undermines the experience of quaffing it.
In countless entertaining experiments, Mr. Ariely examines the ways we’re duped out of making choices in our best interest. In one, he finds that merely suggesting an arbitrary number (e.g., asking students to write down the last two digits of their Social Security numbers) will influence the amount people are willing to pay for something (a bottle of wine, in this case). In another, he discovers that offering three choices is a reliable way to get people to choose the middle one, which inevitably seems the most reasonable in this context.
In a chapter called “The Cost of Zero Cost,” he investigates the way we’re unduly drawn to freebies–even when what we really want costs only very little. (I was reminded of this on a plane yesterday, when the man sitting next to me complained about the in-flight sandwich, but then blurted, “Hell, I ate it because it’s free.”)
Some of the advice Mr. Ariely offers seems unnecessary (do we really need to be told that serving wine in expensive glasses will enhance the experience of drinking it?), and sometimes his prose is a touch too conversational, littered as it is with rhetorical questions and chummy asides. On the whole, though, this is a lively and interesting book, full of inspired queries and creative answers.
But then again, I got it for free.
EmilyBobrow is an editor at Economist.com and the editor of Moreintelligentlife.com.

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