After sitting in my reading pile for the best part of three years, I have finally read (or more accurately, listened to) Dan Ariely’s Predictably Irrational. One of the most commonly referenced popular books on behavioural science, it describes Ariely’s experiments in the areas of cheating, procrastination, social norms, hot decision-making and so on.
One nice element of the book is that Ariely describes his own experiments. In the behavioural science literature, you often come across the same experiments over and over. The field sometimes doesn’t feel very deep. But it is easier to deal with this when the person is describing their own experiments (you can’t hold it against an author that others keeps referring to their work) and they are able to give the experiments some colour beyond the content of the published papers. Then again, if you have listened to a lot of Ariely’s lectures via podcast (as I have), much of the book will be familiar territory.
Rather than review the book, I thought I’d point out a couple of interesting ideas that Ariely presents.
First was his framing of how the link between price and demand flows in two directions. People do not simply demand a certain quantity at a certain price, as the price may feedback about how desirable a product is. Ariely opens that section with the story of how James Assael created demand for black pearls. After initially failing in his marketing attempts, he placed the pearls in the store of a gemstone dealer friend with an outrageously high price relative to the previous prices at which he had failed to sell any of the pearls. Accompanied by an advertising campaign, the demand was born.
Ariely’s explanation of this feedback between price and demand relates to our need for arbitrary coherence. Since we do not know what many things are worth, we will seek an anchor – say a previous price or the last two digits on our social security card. Once that anchor is created, this is the benchmark against which value is measured. Placing the pearls in the gemstone store and advertisements created an anchor that still exists.
A second interesting thread was the desire for individuality. Ariely relates an experiment where he offered a selection of beers to pub patrons as free samples. Where people ordered in sequence and aloud so that each member of a group heard what the others ordered, they tended to order different beers. With private ordering they tended to cluster more. This occurred because those who ordered last avoided the beers that people in their group had ordered before them. So, if you feel a need to express individuality through your meal or drink order, get in first.
Finally, Ariely’s work on hot decision-making, where his team provided computers loaded with arousing pictures to experimental subjects, is truly amusing.
All up, Predictably Irrational is not a bad book for a sample of behavioural economics if you are new to the area. And when you are done with it, I suggest balancing it with some Gigerenzer.