Tuesday, March 30, 2010

Predictably Irrational - Dan Ariely

I was really impressed by Dan Ariely's TED talk a while back, and when I realized there was a book it seemed like a good idea to get my hands on it and read it. Obviously there is more information in a 300 page book than you can possibly cram into a 10 minute talk, although I thought the talk did a very good job of introducing his topic and making his point - which is that we aren't quite as rational as we think we are.

I love that he leads off with his own personal story and how that got him involved in the work he does. Understanding people's motivations makes me happy. Understanding why people do the things they do also makes me happy, and this book helps you understand why people do things. For example, people will make very different decisions when they are aroused than when they are not aroused (he got people to fill out a questionnaire while masturbating). One of the most fascinating results was about how we value things we own much more highly than things we don't own. He visited a university where tickets to the football games were given out by lottery to everyone who waited in line (for up to 3 days!), and found that people who had won tickets were willing to sell them for ~$2000, but people who hadn't won tickets were only willing to pay ~$200 for them. Folks with the tickets felt like they already owned the "experience" of going to the game, while folks who didn't have tickets were thinking in terms of what they would be giving up in order to purchase a ticket.

Another point he made was how we value "Free" much too highly - and often ignore the opportunity cost of things that are free. He set up a table with chocolates, one per customer, either a Hershey's kiss for 1c or a Lindt truffle for 15c. More people chose Lindt. Then he dropped both prices by 1c, and discovered that people almost universally chose the free Hershey's kiss - even though it meant they could no longer buy the truffle for 14c. (He arranged it so that it was part of a larger purchase, so the customer already had money out and the added frustration of digging in your pocket for change vs just taking the free chocolate was removed).

I found his results very interesting and illuminating, but I was also really interested by how he conducted his experiments. Because he doesn't just launch into the final version - he explains how they designed the original experiment and then had to work to avoid the potentially confounding problems associated with that original design. Like I said at the beginning, I love knowing why people do the things they do, and I really love being walked through the entire thought process. Especially when it is as interesting and as well written as this.

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