Predictably irrational by Dan Ariely

Dan Ariely is a fantastic researcher. To test his theories or discover new ones he (with his collaborators) came up with quite interesting experiments. Some of them are highly intelligent and the excitement he feels while doing them is palpable from the text. The idea of the book is to break the assumption that we are rational beings *all the time*. Most of the early economics assumes that humans are rational and will behave in the rational way – given the conditions as they are. But with experiments Ariely argues that we are irrational and in a predictable sort of way. Each of us, given a certain situation – will behave similarly. For example – we will walk 10 mins to a new shop if we are getting a 50% discount on a $14 pen but we will not walk the same 10 mins if we are getting a $7 saving on a $480 suit. Rationality on the other hand says that it does not matter if the product costs $4 or $400, the only question we need to ask is – is walking 10 mins is worth $7 for us or not ? The book is filled with examples in social norms vs market norms (lawyers will help people pro bono but will not help them by giving them a huge discount), influence of arousals (we behave differently when aroused or emotionally charged), procrastination (and how to avoid it), overvaluing what we own, keeping our options open even when they make no sense, effect of expectations (if you want to like something, you will), dishonesty and the power of price and its perceived effect on value (we think highly of things which are overpriced). Overall, a very good book. At times though the book goes into explanations and conjectures which I don’t really like. Conjectures when put into practice more often then not lead to unintended consequences and most of the time they simply don’t work. The chapter on zero price is also quite week. The arguments there are not very well thought of and coming so early on the book – it had a negative influence on my perception of the quality of the book. I would still highly recommend it.

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