Predictably Irrational- The Hidden Forces That Shape Our Decisions

Title: Predictably Irrational- The Hidden Forces That Shape Our Decisions

• URL

• the authors summarized many modes of thinking that may skew the traditional rational choice theory.

• 1. The Truth about Relativity:
     • “… people frequently regard their environment in terms of their relation to others; it is the way that the human brain is wired.”
     • “… people can control what goes on around them. … focus on smaller “circles” can boost relative happiness,…”
• 1. The Fallacy of Supply and Demand:
     • “… consumers purchase items based on value, quality or availability—often on all three.”
     • “The methods of appointing a value to an object with no previous value, … is susceptible to irrational pricing. … When consumers buy a product at a certain price, they become “anchored” to that price, i.e. they associate the initial price with the same product over a period of time. …”
• 1. The Cost of Zero Cost
     • “… Humans make decisions without rationalizing the outcomes of their choices.”
     • “… when faced with multiple choices, the free option was commonly chosen. With the opportunity to receive something for free, the actual value of the product or service is no longer considered. ..”
     • “…applies not only to monetary and quantitative costs, but also to time…”
• 1. Being Paid vs. A Friendly Favor
     • ” … differences between social norms—which include friendly requests with instant payback not being required—and market norms—which account for wages, prices, rents, cost benefits, and repayment being essential.”
     • “… how combining the two can create troubling situations. … done as a “favor” sometimes produced much better results than work paid for.”
     • The author concludes that “money, as it turns out, is the most expensive way to motivate people. Social norms are not only cheaper, but often more effective as well.”[6]
• 1. Emotion in Decision Making
     • “… high-emotion situations such as anger, frustration, and hunger have the potential to trigger irrational effects on decision-making. In such situations our behavior is fully controlled by emotions. We are not the people we thought we were….”
• 1. The Problem of Procrastination and Self-control
     • the authors blames lack of self-control on people’s two states in which they make their judgments—cool state and hot state. In our cool state we make rational long-term decisions, whereas in our hot state we give in to immediate gratification and put off our decisions made in the cool state.
     • “… deadlines set by authority figures such as teachers and supervisors make us start working on a specific task earlier. If we set the deadlines ourselves, we might not perform well. Moreover, we will not start making any progress towards the completion of the task until the deadline approaches.””
• 1. The High Price of Ownership
     • “… The idea of ownership makes us perceive the value of an object to be much higher if we own the object. This illustrates the phenomenon of the endowment effect—placing a higher value on property once possession has been assigned.
     • To avoid the endowment effect, the author suggests that we create a barrier between ourselves and the material things we are tempted by daily.
• 1. The Effect of Expectations
     • the author states that expectations shape stereotypes. Stereotypes provide us with knowledge before the actual experience and thus influence our perceptions.
     • “Expectations can influence nearly every aspect in one’s life…. that expectations can override our senses, partially blinding us from the truth.”
• 1. The Power of Placebo
     • “… a complex and moral question as to whether or not the placebo effect in medicine should be studied more closely or even eliminated systematically.”