Predictably Irrational Book Review - Essay Example

?Book Review on 'Predictably Irrational' Introduction This is a book review of the book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely produced in the year 2008. Dan Ariely is an economist professor at M.I.T. (Ariely 1). Dan Ariely's book is provoking and highly entertaining, ranging from the power of placebos to the pleasures there in. It is charmer-filled, has insightful experiments, engage ideas, and incorporate delightful anecdotes (Ariely 1). The book has 15 chapters that explain Dan Ariely position on how people behave while making economic decisions. While as classical economics explains how humans are rational beings who exercise logic in analyzing the merits and demerits of given economic situations with an aim of making sound economic decisions, it does not explain in a perfect way how people behave making economic decisions. In light of this, that Dan Ariely is a new generation scientist that he negates in his predictably irrational book that human beings behave in fundamentally rational ways. Dan Ariely thus uses the everyday experience and detailed and experimentation research to explain how expectations, emotions, social norms, and other invisible, seemingly illogical forces alter individual reasoning abilities. Dan Ariely uses ingenious experiments to explore how irrational forces and social norms influence our economic behavior. He observes that there is a cultural shift in making economic decisions where fewer market and social norms are now more satisfying, creative, fulfilling, and fun. He performs fun filled experiments on how people buy, sell, and make life time’s decisions thus demonstrating their predictable irrational economic decision making behaviors. This paper draws a clear review of how human beings demonstrate irrational behaviors while making fundamental economic decisions that relate to buying, selling, and other economically driven decisions. Summary of Content The book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely has 15 chapters that discuss the modes of thinking and events that alter the traditional rational behavior in making economic decisions. Dan Ariely explains the truth about relativity confirming how humans frequently regard their environment in relation to others (Ariely 10). In doing this, people compare things that are easily comparable in arriving at certain decisions. He goes ahead to explain this comparison by giving examples of three honeymoon destination options two in Rome and one in Paris. He uses this example to describe the decoy where consumers tend to have a specific change in preference between two options when a third option surfaces. In light of this, Dan Ariely explains how relativity can help people make wise decisions and at the same time demeaning their lives. He relevantly notes that when people compare their lives to those of others in the same category, they tend to manifest envy and jealousy. He equally reckons that human beings rarely get satisfied and the more they get the more they aspire to get more. However, he notes that we can avert this by avoiding relativity by controlling the happenings around us. Dan Ariely explains the fallacy of supply and demand where consumers consider value, quality, or availability before making a purchasing decision. He notes that recommending a value to an item with no initial value leads to irrational pricing. He observes that although prices apply arbitrarily, consumers tend to anchor with those prices upon their first purchase. Indeed, the customers associate with this price for a long time affecting their social value and thus irrationality in price. Ariely hence uses the arbitrary price anchoring to challenge supply and demand theories saying that demand is subject to manipulation and thus affects market equilibrium. He therefore concludes that market equilibrium relies on consumer’s memory and not preferred choices. He further explains the cost of free notion where people choose free options in place of multiple choices. He notes that people would love to get services at zero cost and when a gift is present, they tend to forget the actual value of the product and perceive them more valuable. He notes how the notion of free things changes the behavior of making purchase decisions leading to irrationality. Dan recommends that customers should consider the net benefits of the available choices in relation to value and preference since this would save money and avoid irrational economic decisions. Analysis and Evaluation Dan establishes the differences between social norms and market norms noting that their combination is not favorable in making economic decisions. Indeed, he demonstrates that most people are happy doing things for no pay. Actually, charity work guarantee better results and the introduction of the monetary concept in such a case generate market norms that may negatively affect the productivity. The entry of social norms into the market norms leads to irrational decisions. Hence, Dan concludes that it is cheaper and effective to induce social norms than to motivate performance-using money. Additionally, Dan did experiments to test the influence of arousal on decision-making. He put an emphasis on the effects sexual arousal, on decision-making and drew the conclusion that under these stimulation humans especially the young ones are likely to do things they would not have done in absence of the arousal. He argues that other emotional situations possess the same effects and as such emotions, largely control human behavior in making decisions that may even include economic decisions. This confirms the making of irrational decisions in times of arousal. In addressing self-control, Dan Ariely blames lack of self-control on people's two states in which they make rational long-term decisions and subsequent irrational decisions in absence of self-control. He denotes that we tend to perform well while under the control of others than our own hence prone to irrationality. Moreover, Dan recognizes the fact that we overvalue what we have and make irrational decisions about ownership. To this end, he realizes that the idea of ownership makes us overvalue an object than we would if we do not own it. This scenario demonstrates the endowment effect. However, he observes that we can overcome the endowment effect by creating a barrier between the material things that attract us and us. In addressing the issue of expectations, he reckons that knowledge after the experience does not affect our sensory perceptions. Indeed, he proves that stereotypes influence our perceptions. Actually, Dan argues that expectations can override our senses and lead to irrationality. In addition, Dan Ariely addresses the effect of power of price in making economic decisions giving an example of the placebo effect that emanates from the prices of prescribed medicine. The author has relevantly used different experiments, examples, and studies to establish the irrationality of behaviors as people make economic decisions. Dan demonstrates how people compare themselves with other comparable people or things, the example of the relativity and change of behavior that emerges from the introduction of a third option, manifests the decoy effect which generally promotes irrationality in making economic decisions like purchasing decisions. Indeed, relativity and the comparisons with others will only lead to make irrational decisions and behaviors as we seek to become the best. This change of behavior is actually predictable where comparisons exist. The arbitrary behavior of allocating prices on products equally leads to irrational price. Since, customers accustom themselves with this irrational price they will tend to affect their self-price, hence adopting irrational pricing of their abilities. This further subject market demand to easy manipulation. The manipulated demand affects the entire market situations demonstrating irrational behaviors in making market decisions. Dan presentation of the concept of cost of free is probably one of the most significant factors of irrationality. By addressing this concept, we can ascertain that consumers tend to buy products with attached gifts disregarding their initial value. Indeed, people would even love to get free services. Thus, without considering the market tread of a product, they prefer and overvalue the product with gifts. This is a clear manifestation on irrational behavior in making economic decisions. The fact that people would perform great for charity and less for monetary situations, demonstrates the place of social norms on market norms. The use of social norms in market environment leads to irrational behaviors since customers tend to overlook infractions in making economic decisions. Moreover, Dan draws the probable effect of emotions and arousals in decision-making are not rational. Indeed, where emotions are involved, it is challenging to adopt rational behaviors and subsequent decisions. The various emotions will thus tend to invoke irrational behaviors in all fronts including the economic decision-making. Dan institutes the effect of self-control on behavioral ways. Where humans tend to meet deadlines and perform better while under the control of others than under their control proves that human behaviors are prone to supervision by their seniors and friends. This proves irrational behaviors. Dan demonstrates how we tend to overvalue what we have and devalue what we do not own. This manifests irrationality in ownership. However, since sometimes presumption of ownership comes before ownership, then people behave irrationally leading to the endowment effect that equally proves irrational behavior in decision-making. The consideration of customers’ expectations is significant in a market scenario. This is because people tend to make decisions subject to previous experiences. However, such decisions are not necessary rational and sometimes override logic leading to irrationality. The observation by Dan that prices can act as placebos was a good attempt to demonstrate irrational behaviors in medical science. Conclusion The book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely discuss the modes of thinking and events that alter the traditional rational behavior in making economic decisions. Dan performs fun filled experiments on how people buy, sell, and make lifetime decisions to demonstrate predictable irrational economic decision-making behaviors. He explains how relativity can help people make wise decisions and at the same time demeaning their lives and the irrationality of combining social norms and market norms in making economic decisions. He equally notes that emotional situations largely control human behavior in making decisions that may even include economic decisions. Similarly, Dan demonstrates irrational decisions in absence of self-control. In conclusion, he notes that irrational decisions about ownership, fallacy of supply and demand, anchoring price, and expectations can override our senses and lead to irrationality. The book correlates with my thesis. Works Cited Ariely, Dan. Predictably Irrational: The Hidden Forces That Shape Our Decisions. London: Harper Collins, 2010. Print. Read More