“Predictably Irrational – The hidden forces that shape our decisions” is one of the most popular books on Behavioural Economics, written by Dan Ariely, Professor at Duke University. Behavioural Economics itself is a newly emerging genre at the intersection of economics, social science and psychology and it challenges some of the views of standard economic theory.
In this book, Dan raises a few questions on human behaviour and answers them with explanations on why we do what we do. Each chapter discusses a different phenomenon.
The Truth about relativity
People cannot make decisions when presented with a single object in isolation. It is only when it is considered in comparison with another object that they can decide which one is better.
The Fallacy of Supply and Demand
According to traditional economics, when there is demand, there is supply. But Dan has shown that demand can be created by irrational pricing.
The Cost of Zero Cost
How do people react to the words “zero cost” and “free”. The negatives of the free items never surface. The difference between one cent and free is huge.
The Cost of Social Norms
Social norms outweigh the market norms. Life with fewer market norms and more social norms can be more satisfying, creative and fulfilling.
The Influence of Arousal
We are prone to making the wrong decision when gripped by intense emotion. Though one may be a Dr. Jekyll under normal circumstances, Mr. Hyde can surface when one is in an emotional state.
The Problem of Procrastination and Self-Control
We have the problem of procrastination related to immediate and delayed gratification. But there are self-control mechanisms which can be used to control this problem.
The High Price of Ownership
We tend to overvalue our possession and undervalue others’ possessions. Ownership changes our perspective.
Keeping Doors Open
Options distract us from our main goal. We ought to close the open doors because they draw energy and commitment away
from the doors that should be left open.
The Effect of Expectations
Why the mind gets what it expects. Though we cannot get rid of preconceptions totally, we need to acknowledge that we are all biased and trapped within our perspective.
The Power of Price
Our irrational instincts make us instinctively assume that the quality of a discounted item is less than that of a full-price item. Because of this, the placebo effect comes into action and the item’s quality becomes less.
The Context of Our Character
Why we are dishonest and why dealing with cash makes us more honest. A person who would never steal a cent from the office, if it were cash, might without any qualms of conscience take stationery.
So, that is the outline of what the book contains. Read it for yourself to enjoy what Dan has to say about these and how he proves his observations.
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- Simple language. Easy to understand.
- Laced with humour.
- Interesting phenomena – well explained.
If you want to go further, take this course on Coursera conducted by the author.
Do read this if you want to understand why we do certain things we do.