Analysis of The Hidden Forces That Shape Our Decisions by Ariely Dan - Book Report/Review Example

 “Predictably Irrational” Book Review CHAPTER ONE Summary. The key point of this chapter revolves around the relationship between decision-making and relativity (Ariely 10). People compare products and services that are the same and comparable. This means people often unsure about product choice until when it is placed in context. In addition, consumers often do not know the true value of every product choice. As a result, comparing products helps consumers make an improved choice or at least that is what the concept of relativity convinces them to do. With the help of several examples, the author, Dan Ariely, proves just how extremely difficult it is to valuate a product or even situation by itself (11). Experiments. The first example in the first chapter is the subscription for the online version of the Economist magazine. Ariely was given first the options of only a subscription for an online version for $59 and a print version for $125. Afterwards, the Economist revised its options to $59 for an online version, $125 for a print one, and $125 for both an online and print copy (15). The third alternative altered the basis for contrast in the sense that the digital version was essentially free. In other words, the Economist simply added the print version to make the option appealing for subscribers. Ariely tests the phenomenon of relativity again in a case of a traveling agent who changes packages from similar trips to either Paris or Rome to one to Rome with breakfast and the other to Paris without a morning meal. Another experiment is choosing a partner for courtship based on looks. This experiment entails pictures of a handsome person, another equally handsome person, and a third slightly less handsome person, but the same as the second one. Most subjects chose the second one since it was easier for them to compare him to the last one than with the first one (24). Author’s Explanation. According to Ariely, “Thinking is difficult and sometimes unpleasant.” Signs that enable people to come up with the relative value of certain offerings afterwards lower the needed thought process (18). Ariely adds that the Economist subscription experiment was easy for one choose the new third option even though he or she is uncertain if a print copy is more valuable than a digital version. Combining both options made the third alternative more valuable than the print-only option. Ariely explains that relativity links into variation and satisfaction (28). At this point, the way people make decisions is the basis for the first chapter rather than how they act in line with the neo-classical perception of logical actors. Marketing Implication. Consumers are always unable to process choices while in a vacuum and instead prefer comparing commodities to see how one favors over another. To demonstrate the marketing basis implied by the concept of relativity, Ariely tested people looking to buy new houses with three options: modern, colonial, and colonial with a broken roof for a lower cost (22). Most buyers chose the second option because it is simpler to compare with the third one. Marketers can use this use this concept to manipulate consumer choice unknowingly. Allowing customers to compare prices and products helps marketers to assure a purchase by a given consumer irrespective of choice. CHAPTER TWO Summary. The main point of the second chapter is the possibility that a number of factors unrelated to the true value of a commodity or service affect people’s choice over this product (31). Since the first chapter established the fact that people lack an insight on determining the integral value of products, the second chapter contends that the first value tag is the decisive one. As a result, Ariely warns that people should be aware of their shopping behavior and ensure that the funds they fix on buying certain products is in fact valuable and progresses their general wellbeing more than those products or services’ alternatives (47). Experiments. Ariely calls the main test Black Pearls and involved the absence of black pearls in the market, which made it hard to set up a price. Ariely took subjects of this test to Harry Winston’s toney shop and showed them precious metals and stones marketed at a very costly value (32). The original relationship between the subjects and the products acted to fix the value successfully. This fixing process rose costs in the future because the original frame wherein people were presented with the commodity amongst costly products. Ariely compares this fixing cost phenomenon to that of imprinting to lead to how people are always fixed on the first commodity. A second experiment that supports the anchoring concept include the persistence of old ideas of the value of houses in different markets (39). Author’s Explanations. A range of factors that are totally unrelated to any advantage that an individual gains from a purchase establishes or, at minimum, substantially influences the cost the individual is ready to incur for a product or service. Ariely explains this spectacle using the concepts of random coherence and self-herding. Random coherence is a situation wherein frequently arbitrary factors anchors sway a person’s judgment although his or her ensuing actions will be coherent and rational. Self-herding is reflecting and making a choice based on what others think of the value or a product or its relation to another. However, the person’s original experience has to have been negative for the individual to change his mind about the product based on others’ opinions or suggestions (39, 42). Marketing Implications. A marketer can use Ariely’s explanations for random coherence and self-herding to turn around his or her product within a given market. The marketer can launch the commodity by basing its cost on potential consumers’ ideas of the commodity and competitor ones. However, the marketer has to ensure he or she is not comparing the commodity’s pricing or that of a rival brand. Marketers formulate a perception that supports their valuing bases and this is how many businesses today are successful in pricing a commodity ten times more than a rival one. This marketing implication of the second chapter relates to classical economics that contends that consumers’ choices regarding resource distribution echo their comparative valuation of the diverse investment options (47). CHAPTER SIX Summary. Precommitment is the main point of this chapter, which is a truly useful concept when people arrange things in a manner that is nearly impossible to alter in the future (91). For instance, spending limits on credit cards are not enough to stop the owner from buying a clothing that he or she has desired for quite some time. However, adding a smart card that enables a prefixed budget on a credit card for different groups of products or services can be helpful to a person (93, 94). The smart card in this case acts as the representation of precommitment and means that a person made a rational choice long before coming across ambivalent products or situations. Experiments. Chapter six has the least number of experiments in the entire book. The first experiment entails the description of three sets of graduate students from a consumer behavior class. Each set was needed to submit three assignments throughout the semester. Ariely gave the first set stringent and evenly spaced deadlines for submission with a punishment for being unable to adhere to them (96). The author instructed the second set that submitting one’s assignment early does not earn him or her a reward and neither does submitting it late impose on the student a penalty. Lastly, Ariely allowed the third set to set their own deadlines, if any, and failing to meet this deadline leads to a penalty. The first set of students had the best grades and submitted their papers early while the second set performed the least well (89). Author’s Explanations. The experiment with self-imposed and mandatory deadlines implies that people procrastinate less when deadlines are preset and are aware of them beforehand (95). Total flexibility is seemingly unhelpful although establishing individual deadlines occasionally helps. Guidance and transparency are important aspects of the solution to eradicating procrastination in one’s life. Ariely recommends making one’s way of living very simple to avoid procrastination and assure precommitment (97). In his experiment, the set of students who were free to set their own deadlines performed nearly as well as those with strict ones. Clearly, the solution of precommitment is almost as influential as externally forced caps or limits (96). The chapter refers to procrastination as a self-inflicting wound that numerous Americans suffer from. Marketing Implications. Organizations can exploit consumers prefixed patterns of consumption through their commodities and services. Ariely uses the example of how Ford Motor Company realized that Honda that took advantage of how their customers were unable to keep track of which car parts needed service. Honda had service packages centered on mileage or periodic servicing. Honda knew their customers were having a hard time determining which car components needed service. As a result, the carmaker imposed prefixed deadlines in the form of mileage and terms to remind them that it was time to service their vehicles even though each car component requires servicing after different periods of usage. In the process, Honda owners end up paying for service for car parts that need and those too that do not need servicing (108). Works Cited Ariely, Dan. Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions. Los Angeles, CA: Harper Perennial, 2010). Read More