3 Key Takeaways : Predictably Irrational by Dan Ariely
I find that of the non-fiction books that I read, the ones that fascinate me most are usually ones about our behaviours and why we do what we do. I’m sure most of the time we think we are in complete control of our decisions but are we really?
I first discovered Dan Ariely, a Psychology & Behavioural Economics Professor, through a series of Ted Talk videos and from it, I always learn something about the tricks that my mind plays on me and how it affects the choices I make. I’ve read this book ages ago but I think its nuggets of wisdoms still rings true so today I will be sharing 3 key takeaways from his book, Predictably Irrational.
1. The Anchoring Effect – why first impressions matter
Our first decisions often sets the tone for a long sequence of decisions.
Ariely gave a series of examples, one of which involved 2 different groups of students, one paid 10 cents (lets call them Group A) to listen to an annoying sound, another paid 90 cents (ie. Group B) for it. When both groups were offered 50 cents to listen to the same sound again, Group A was more than happy to do it, while Group B refused.
It was simply that the initial prices became an anchor price for that experience.
Group A’s thought process was that if I could bear that sound for 10 cents, I could certainly bear it for 50 cents, while Group B felt that if they were paid higher in the first round, why should they settle for less to endure it again.
I can definitely see the effects of anchoring in making first impressions, especially at work. Imagine if you had a co-worker who historically worked slower compared to his peers. Suddenly if he worked at normal speed, it would seem ‘fast’/an improvement. Compare this to maybe you, one who tries so hard to impress so you go all out on Day 1. Well guess what my frienddd, you gotta keep giving more cause being fast is the now the anchor.
Anchoring is also visible in setting our lifestyles. I’m pretty sure if someone was born with a silver spoon and have never taken the train in their entire lifetime, they would be more mortified with the peak hour traffic, compared to someone who takes the train to work daily. I guess that’s why I’m kind of afraid of giving myself really nice things in life, I’m afraid I may like it too much to give it up hahaha.
2. The cost of zero cost – our favourite four letter word
F R E E !
Have your ever grabbed a gift bag filled with coupons you don’t use – all in the hopes that you might someday? or helped yourself to additional servings at the buffet even though you are already so full?
Why do we like free stuff so much? What makes FREE so appealing that it can make a deal seem ‘more worth it’, even though that free stuff isn’t even something we use/want?
Ariely suggest that most transactions have an upside and a downside and when something is F R E E, it appears that there is NO downside. What’s there to lose? Alternatively, when we choose something that is not free, we run a risk of making a poor decision.
This behaviour is ultimately rooted in our fear of loss, making us inherently risk averse.
Here’s a quick quiz, suppose I offered you a choice between:
a. FREE $10 Starbucks gift card, vs
b. A $20 gift card, in exchange for $7
What would you choose?
If you chose Option A, look again. Rationally, Option B is a better choice, it offers a $13 discount ($20-$7)! It appears that if given the choice, we are more likely to take a rationally worse-off deal, especially if it means we don’t have to part with ANY of our money.
However, this is the problem with loss. We tend to measure it monetarily because hey, it’s tangible and its easier to assess it that way. What we fail to realise is we pay with our space and our time and energy when we end up having to Marie Kondo it all away eventually.
3. Why do we lie? – all lies are equal, some more equal than others
There are two types of dishonesty.
One is the type that is committed by crooks (those who’ve planned out the dishonest act and how to get away with it). The second type is committed by those who consider themselves as honest – people who took an extra splash of coke from the dispenser machine, those who ‘borrowed’ a nice pen from a conference.
So, what makes one act of dishonesty okay and the other not? What makes a white lie better?
Sigmund Freud explains that we internalise the social virtues of a society (ie. lying is bad) and this internalisation creates a super ego. The superego is happy when we comply to society’s ethics, ie. when we do something kind (eg. returning a lost wallet), we get that warm fuzzy feeling because such acts triggers reward centers in our brain.
The problem is, this superego is only triggered when we contemplate big transgressions, like taking an entire box of highlighters from the library. But for tiny transgressions, ie. one or two, we don’t even consider these acts of dishonesty. What’s the harm of just one or two anyways right.
In the book, Ariely demonstrated that when we are reminded of our values through religion or professional standards we are less likely to cheat. Though I prefer this solution called the Fraud Triangle, something I learnt from my auditing class on how to prevent fraud (lol who knew this would appear in the blog). In the example of taking highlighters from the library, fraud happens when there are:
1. Opportunity – lack of controls (eg. no one was in the library, no cctv, highlighters laying around the table)
2. Incentive – motivation/pressure (eg. I ran out of highlighters, my exam is tomorrow, the store is too far)
3. Rationalisation – personal justifications (eg. My exam is so important, the library buys new ones yearly anyway, who cares if I take one)
So I do believe if we can minimise the elements in the Fraud triangle in our personal lives, we are likely to be more honest 🙂
With that, I end my list. There are many more examples from his book, most surrounding themes of our beliefs, social norms and selfishness, if you want to check out the book.