Predictably Irrational
Sunday, November 27th, 2016 | Books
Predictably Irrational: The Hidden Forces that Shape Our Decisions is a book by academic Dan Ariely. There is so much good stuff in this book. Whether you are looking to understand humans, sell products, design a better society or merely learn some interesting stuff, this book is worth reading.
He begins by telling a story about The Economist. They offer free options: online only, print only, online and print. Print only and online and print are priced the same. Why would they do this? Because people compare things relatively.
If you give people no basis for comparison, they will not know how to judge something. This is why a $1200 bread-maker may not sell at first. People do not know whether they need a bread-maker. But put it next to a $1600 bread-maker and people can see that picking the $1200 over the $1600 is clearly a smart move.
Similarly, you can bias people’s opinions about pricing. People like to buy the thing in the middle. So if you want to sell a certain TV at a certain price, but it between a cheap TV and a really expensive TV. Or, if you are in a restaurant, but one really high priced dish on the menu if you want to sell more of the second highest price dish.
What if you want to break this comparison? Starbucks certainly did when they started charging £10 for a coffee (I do not actually know what Starbucks charge). Why would people pay that when McDonald’s sell coffee for £1.49? Starbucks created an experience. A coffee house with music and chairs and pastries to break the price anchor.
People also love the word free. Amazon were smashing it with their free delivery. Except in France where they were doing terribly. Why? Their discount delivery was one cent. It made almost no difference to the price, but it was not free. People will also queue for free stuff, even though their time is valuable and they could just buy the product instead.
One of the keys here is social norms vs market norms. Professionals will rarely do work for low cost. You cannot get a lawyer to do discount work for the vulnerable. Once you are in the realm of market norms, they want their fee. However, if you ask them to do the work for free, they yes! Why? Because social norms are used instead of market norms.
Trials are a great way to sell stuff. Why? Because once you give someone something, it triggers virtual ownership. Even though they have not bought it yet, their heart tells them they already own it and they go into loss aversion.
Loss aversion may also a reason that we continue to hang on to old friendships, particularly long-distance ones, or ones that have fallen apart, when we should actually be putting that time into building new friendships.
Food glorious, food
How about food? It turns out the same food tastes between when you tell someone what it is in and add exotic ingredients. People’s restaurant behaviour is also interesting. In the West, where individualism is valued, people are less likely to order the dish they want if someone else had ordered it before them.
What that means is that if the waiter is taking your order, and someone orders the dish you wanted, you are more likely to switch your order to a dish you prefer less, because you want to be seen as being individual.
However, when you run the same experiment in East Asia, where fitting in with the group is valued more highly, the opposite is true. People are more likely to switch their order to a dish they prefer less when someone before them orders it.
Dishonesty
Ariely has a long section on dishonesty. Why is it okay to steal a pen from work or a conference for example, but not steal a whole box of pens? There seems to be a sense of what is being a bit cheeky, and what it actually morally wrong.
Cash replacements seem to divorce us from the true value of what we are doing. For example, stealing someone’s Skype credit (this happened to Ariely) seems less wrong than stealing the money directly from him. This is a concern as we increasingly move towards a cashless society.
Summary
I need to read this book at least one more time to get all of the knowledge out of it. It is packed full of stuff that is useful and interesting. Read it. Read it now. Then go buy a bread-maker.
Predictably Irrational: The Hidden Forces that Shape Our Decisions is a book by academic Dan Ariely. There is so much good stuff in this book. Whether you are looking to understand humans, sell products, design a better society or merely learn some interesting stuff, this book is worth reading.
He begins by telling a story about The Economist. They offer free options: online only, print only, online and print. Print only and online and print are priced the same. Why would they do this? Because people compare things relatively.
If you give people no basis for comparison, they will not know how to judge something. This is why a $1200 bread-maker may not sell at first. People do not know whether they need a bread-maker. But put it next to a $1600 bread-maker and people can see that picking the $1200 over the $1600 is clearly a smart move.
Similarly, you can bias people’s opinions about pricing. People like to buy the thing in the middle. So if you want to sell a certain TV at a certain price, but it between a cheap TV and a really expensive TV. Or, if you are in a restaurant, but one really high priced dish on the menu if you want to sell more of the second highest price dish.
What if you want to break this comparison? Starbucks certainly did when they started charging £10 for a coffee (I do not actually know what Starbucks charge). Why would people pay that when McDonald’s sell coffee for £1.49? Starbucks created an experience. A coffee house with music and chairs and pastries to break the price anchor.
People also love the word free. Amazon were smashing it with their free delivery. Except in France where they were doing terribly. Why? Their discount delivery was one cent. It made almost no difference to the price, but it was not free. People will also queue for free stuff, even though their time is valuable and they could just buy the product instead.
One of the keys here is social norms vs market norms. Professionals will rarely do work for low cost. You cannot get a lawyer to do discount work for the vulnerable. Once you are in the realm of market norms, they want their fee. However, if you ask them to do the work for free, they yes! Why? Because social norms are used instead of market norms.
Trials are a great way to sell stuff. Why? Because once you give someone something, it triggers virtual ownership. Even though they have not bought it yet, their heart tells them they already own it and they go into loss aversion.
Loss aversion may also a reason that we continue to hang on to old friendships, particularly long-distance ones, or ones that have fallen apart, when we should actually be putting that time into building new friendships.
Food glorious, food
How about food? It turns out the same food tastes between when you tell someone what it is in and add exotic ingredients. People’s restaurant behaviour is also interesting. In the West, where individualism is valued, people are less likely to order the dish they want if someone else had ordered it before them.
What that means is that if the waiter is taking your order, and someone orders the dish you wanted, you are more likely to switch your order to a dish you prefer less, because you want to be seen as being individual.
However, when you run the same experiment in East Asia, where fitting in with the group is valued more highly, the opposite is true. People are more likely to switch their order to a dish they prefer less when someone before them orders it.
Dishonesty
Ariely has a long section on dishonesty. Why is it okay to steal a pen from work or a conference for example, but not steal a whole box of pens? There seems to be a sense of what is being a bit cheeky, and what it actually morally wrong.
Cash replacements seem to divorce us from the true value of what we are doing. For example, stealing someone’s Skype credit (this happened to Ariely) seems less wrong than stealing the money directly from him. This is a concern as we increasingly move towards a cashless society.
Summary
I need to read this book at least one more time to get all of the knowledge out of it. It is packed full of stuff that is useful and interesting. Read it. Read it now. Then go buy a bread-maker.