A few years ago I got a new Audi A3. The car was great and I loved driving it, but about three months later, while I was driving down the Mass turnpike (trucks on my right and left), the transmission stopped responding and the car lost speed, fast. It was very dangerous to maneuver to the right shoulder, but eventually I made it.
Over the next month or so I had multiple “chats” with the Audi customer service representatives, as well as with the Audi repair shop where my car had become a permanent fixture (I think they were trying a new experiment on how to best annoy their customers and they were getting better and better at this with every passing day). About 5 weeks after the transmission died, I drove my rental car back to Boston, and took my Audi back to Princeton. But this was not the end of it for me. (more…)
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Like Tyler Cowen posted a blog today discussing one of the chapters in Predictably Irrational– the chapter on Free!
A lively discussion emerged from his posting, with people proposing many alternative accounts for the findings. Most of these alternative accounts are interesting (transaction costs, gifts, social norms) and they are ones that we have tested and have found that they cannot account for the phenomenon of Free!
For the complete paper describing many of the experiments see this link, or see Chapter 3 “The Cost of Zero Cost Why We Often Pay Too Much When We Pay Nothing”
 Irrational behavior is a part of human nature, but as MIT professor Ariely has discovered in 20 years of researching behavioral economics, people tend to behave irrationally in a predictable fashion. Drawing on psychology and economics, behavioral economics can show us why cautious people make poor decisions about sex when aroused, why patients get greater relief from a more expensive drug over its cheaper counterpart and why honest people may steal office supplies or communal food, but not money. According to Ariely, our understanding of economics, now based on the assumption of a rational subject, should, in fact, be based on our systematic, unsurprising irrationality. Ariely argues that greater understanding of previously ignored or misunderstood forces (emotions, relativity and social norms) that influence our economic behavior brings a variety of opportunities for reexamining individual motivation and consumer choice, as well as economic and educational policy. Ariely’s intelligent, exuberant style and thought-provoking arguments make for a fascinating, eye-opening read. (Feb.) |
Last week the second largest bank in France, Societe Generale, announced that it had uncovered a 4.9 billion euro ($7.14 billion) of fraudulent trades, allegedly committed by a 31-year-old trader named Jerome Kerviel.
Before we decide which parties are to blame, let me tell you about some experiments we recently conducted on cheating with MIT and Harvard students. (more…)
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Radio In Vivo Jan 30th 2008 Radio Show |
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| KUOW Speakers Forum (3/6/2008) | Listen Here |
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| NPR: Dissecting People’s ‘Predictably Irrational’ Behavior NPR 02/21/2008 |
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 Dan Ariely: Our Irrational Economic Mind |
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| The Early Show (CBS 02/19/2008) Dan Ariely discusses his new book, Predictably Irrational,with CBS’s Harry Smith. |
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| The Big Think (02/19?2008) | Watch Video Here |
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| BloggingHeads.Tv (02/25/2008) | Watch Video Here |
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| Book reading at Cody’s in Berkeley CA (03/04/2008) | Watch Video Here |
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| Decisions and illusionsWe’re so smart, right? Yet ‘Predictably Irrational’ in making our choices 03/02/08) |
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| The Wrong Stuff – New York Post (03/10/2008) By Brian Moore | Read Interview Here |
Harvard Business review just published a short description of some research that Nina Mazar, On Amir, and I carried out over the past few years as part of their “Breakthrough Ideas for 2008,” and who am I to challenge this categorization?
The academic paper describing these findings in more detail will come out in the Journal of Marketing Research sometime in the near future, but in the meantime, here is the short version of it.
In general, the results point to a few interesting aspects of human nature. One is that most of us, when tempted, are willing to be a little dishonest, regardless of the risks. Another is that even when we have no chance of getting caught, we still don’t become wild liars-our conscience imposes some limits. Finally (and what I find most disturbing), it’s clear that we have an incredible ability to rationalize our dishonesty and that justifying it becomes substantially easier when cheating is one step removed from cash. Nonmonetary exchanges allow people greater psychological latitude to cheat-leading to crimes that go well beyond pilfered pens to backdated stock options, falsified financial reports, and crony deals. Such latitude is the force behind the Enrons of the world.
In a recent report, David Leonhardt of the New York Times, described Senator Obama as a behavioral economist, saying that:
“Senator Obama’s ideas, on the other hand, draw heavily on behavioral economics, a left-leaning academic movement that has challenged traditional neoclassical economics over the last few decades. Behavioral economists consider an abiding faith in rationality to be wishful thinking. To Mr. Obama, a simpler program – one less likely to confuse people – is often a smarter program.”
I don’t know whether Senator Obama is a behavioral economist or not, but it seems to me that realizing how confusing many of the policies implemented in DC are (the tax code, the new prescription drug program, etc.) — is a matter of common sense that I hope is apparent not only to behavioral economists.
The World Economic Forum is a marvelous and interesting place. During my first day I tried to measure how many boring people I would meet. I started by randomly picking a person, try to chat with them for a few minutes and record my impressions. I went on with this for a few hours without meeting even one person that I did not enjoy spending time with (the next day I met a few politicians and at that point the game was over…).
I moderated a session about sustainability, and aside from the topic, remarks of the panel and the reflections of the audience, the highlight was to meet Jeffrey Swartz (President of the Timberland Company) — what a delightful person!
The next few days were full of meetings, receptions and parties, but the thing that I was most impressed with (over and over) was the energy and excitement of the people around me. Almost everyone was on a mission to change something in the world, to build something better and to fix some problems — and they were going about it in a creative and useful way.
I am not yet sure how much change actually comes out of Davos, but it sure gives me hope.
A few weeks ago, a paper that Mike Norton, Jeana Frost, and I wrote was selected as one of the Ideas that helped make 2007 what it was.
Aside from the fact that the NYT decided to drop Jeana and my names from the paper this was a very happy event.
The paper itself is about the idea that although people expect that the more they get to know about another person the more they will like this person, in reality familiarity breeds contempt!
Why is this the case? When we get partial information about others we tend to fill the gaps optimistically, assuming that they are just like us and that they like the same things we like. However, when we learn more about that other person we can no longer hold this optimistic interpretation, the disappointment begins, and from there on the disappointments escalate. For example, imagine that someone writes that they like music. You assume that it is the same music you like (blues) and you immediately like this blues-music-lover. But when you learn more, you discover that in fact they like jazz, and once you see one dissimilarity, everything you learn afterward is colored by that.
What is the lesson here? Sure there are some people that are worth knowing very well, but in the process of finding these individuals we will encounter a lot of heartache and disappointments.
My immersive introduction to irrationality took place many years ago while I was overcoming injuries sustained in an explosion (here is a description of my experiences in the hospital). The range of treatments in the burn department, and particularly the daily “bath” made me face a variety of irrational behaviors that were immensely painful and persistent. Upon leaving the hospital, I wanted to understand how to better deliver painful and unavoidable treatments to patients so I began conducting research in this area (see picture below). After completing this initial research project, I became engrossed with the idea that we repeatedly and predictably make the wrong decisions in many aspects of our lives and that research could help change some of these patterns. A few years later, decision making and behavioral economics dramatically influenced my personal life when I found myself using all of the knowledge I’d accumulated in order to convince Sumi to marry me (a decision that was in my best interest but not necessarily in hers). After managing to convince her, I realized that if understanding decision-making could help me achieve this goal, it could help anyone in their daily life.
Predictably Irrational, and Perfectly Irrational are my attempt to take my research findings and describe them in non academic terms so that more people will learn about this type of research, discover the excitement of behavioral economics, and possibly use some of the insights to enrich their own lives. In terms of official positions, I am the James B. Duke Professor of Behavioral Economics at Duke University and a founding member of the Center for Advanced Hindsight. (Click here for a short version of my bio, and click here for an extended version of my bio)
My free time is spent working on a guide to the kitchen and life—Dining Without Crumbs: The Art of Eating Over the Kitchen Sink—and of course, studying the irrational ways we all behave.
