Predictably Irrational

There's a very comfortable idea in traditional economics: that we calmly weigh costs and benefits and choose what's best for us. Dan Ariely, a professor of psychology and behavioral economics, has spent his career showing that real life doesn't work that way. We decide in a hurry, with emotion, and with our heads full of comparisons.

The title gives away the thesis. Irrational doesn't mean crazy or random. It means our mistakes follow a pattern: we err in the same direction, in the same situations, in ways that can be predicted and even reproduced in a lab. That predictability is what turns the mess of our choices into a subject for science.

To prove it, the book tells short, creative experiments, almost all with college students, involving magazine subscriptions, chocolates, beer, and pens. Each chapter isolates one trick of the mind and shows how it appears in the supermarket, at work, and even in relationships. We'll go through the main ones, one at a time.

The thesis of the first chapter is that the brain has trouble measuring the absolute value of things. It prefers to compare. The most famous experiment involves The Economist magazine: there was a digital-only subscription, a print-only one, and a combined one, and the combined one cost the same as print. It looked like a useless option, but it changed everything.

With the useless option on display, most people chose the combined package, because it looked like an obvious deal next to print. Without it, the choices split in a different way. Ariely calls this third alternative the decoy effect: an option built to be compared with just one of the others and push us toward it.

In the U.S., it's the $70 cell phone plan next to a $75 one that gives you double the data, or the mid-range TV displayed between a worse one and a much pricier one. Before deciding whether something is good, it's worth asking what the display wants you to compare it with. And what if you compared it with something else?

In another chapter, students wrote down the last two digits of their own Social Security number and then bid on wine, chocolate, and a keyboard. Those with high numbers bid much higher than those with low numbers. The number had no connection to the product, and still it worked as a starting point.

This phenomenon is anchoring: the first value that appears becomes the reference for everything that follows. Ariely goes further and argues that when a first decision creates an anchor, later ones stay consistent with it, even if its origin was arbitrary. He calls this arbitrary coherence, and it feels like we're choosing with good judgment.

That's why the used car salesman names the price first, the thrift store marks a coat 'from $300 to $120,' and the contractor wants you to say how much you'd pay. Whoever says the first number usually pulls the conversation toward it. When it's time to negotiate your salary, think about this before staying quiet.