Predictably irrational...

A twitter link, a you tube video and book review later, i came across a book by this title .... Predictably Irrational.

It is a popular book written by Dr Dan Ariely describing the irrationality that is coded in our behavior and its implications in our economic and financial dealings.

Dan Ariely (born 1967 in New York) is an Israeli American professor of psychology and behavioral economics. He teaches at Duke University and is the founder of The Center for Advanced Hindsight. In his book, Dan Ariely challenges the rational thought theory which has been the foundation for present day economics. Through various examples, he illustrates that we as people are not completely rational and that our actions are governed by our emotions. He uses many examples to illustrate how we make our choices on a relative scale when compared to the options presented to us than on an absolute scale of their economy and efficiency. He highlights the wonder of free and discount as we run from store to store or product to product to get that one free thing. He uses these and many such everyday examples to demonstrate how our behaviors influence our financial dealings and as to how these are predictable enough for companies and advertisers to exploit us. I am sure for those who have not read it, it sounds like a fascinating book. It is not disappointing too. I mean, it shows you how irrational we all can be. But to me, a number of the outcomes seemed predictable for some reason but since the book was a funny and a light read, I finished it in a few hours (Maybe i should have added that i was on a 5 hour train journey !!). Anyways the book is certainly worth a read for anybody interested in understanding the daily economics.

But there were also a couple of points in the book that i didnt quite agree with and i decided to write an email to the author seeking his opinion on the questions raised by me.

So here is the mail is wrote:

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"Dear Dr Dan,

I am a graduate student at the Indian Institute of Science, Bangalore, India and have been pursuing my graduate studies in Molecular Oncology.

I have recently read your book "Predictably Irrational" and found it to be quite a page turner. I must say I agreed with you on most accounts and had come to similar conclusions (on an intuitive level of course) a lot of times. I must also say that i thoroughly enjoyed the experimental designs you and your team have come up with (Especially liked the beer and restaurant one)! However, while i was reading your book, two points you mentioned did jump out at me as seemingly odd...

The first of course is with your chapter where you talk about the endowment value... where we value what we possess more than what we don't have. The point was well illustrated with your example of the basket ball tickets and i do agree with your case to some extent. However, a more common place observation i have is that people often value something a lot more when they don't have it and the charm wears off once you own it... let me cite a few examples:
- I am sure you've found a book to be irresistible when you are issuing it from a public resource like a library, but the moment you manage to purchase the book, you know that you own it and can therefore read it at any time. You thus move onto other books that you are desirous of reading.
- Similarly, we all wish for the great dress which costs a bomb and looks great on the mannequin but then if we get hold of it and we find that it doesn't match up to our glorious expectations, then the mere possession of the dress makes it less elusive and less desirous.
- Once a student gets into a great school, he really doesn't think it is too difficult to get there and therefore doesn't value it as much as someone who was rejected, who holds on to the school as a dream for a lifetime.

In case of the basket ball game too, I wonder if the ticket winners would have had a different quote to make with the benefit of hindsight... I mean, say the game was not all that great or say that it was not worth all the hype after all... Just that, once you truly experience what you've paid for, i doubt if it will hold the same charm. It is possible that the experience at the game would in hindsight allow someone to change his mind and devalue the ticket.

Thus, I see a certain disagreement with your statement that people tend to value things they possess than what they haven't managed to get hold of. In your experiment you are only measuring the value people attach to the prospect of a game and that too before the game happened. In my opinion, your point will be well justified only if the same differences hold when the students have seen the game...

The second is not really a point of contention but i was merely surprised (like your students) at the result with the increased levels of cheating with the tokens. I would expect increased levels of dishonesty with non-monetary transactions but that would not be expected to be so high especially when tokens were only one step away from cash (as was declared already). I find it extremely surprising and a bit too alarming too at the thought that in a world that is fast moving away from cash, our moral fibers are becoming more and more lenient with cheating (esp since the rewards are non monetary). I do share your concern for the same and I wish there could be solution other than a moral code.

I also have a feeling that while signing on a moral code and reminding people of the ten commandments did inspire honesty, i do have a fear that such honesty would probably be worn off under repetitive use. I mean, would people be so affected by the code if the same was offered all the time.... well, witnesses in court swear to honesty before their statements and yet they manage to blatantly lie.... It is just that with adequate training, work and time, we could all get over our moral inhibitions.
(Though, i really hope that this doesn't happen.)

I also thoroughly enjoyed the parts of your books that dealt with the placebo effect. It is true that the mind has a great influence on our physical self as well and this understanding is important in many aspects. The ethical issues that arise are also pretty serious. And i guess, the use of randomized trials with patient consent is the most sensible way of going about it - where people are informed about the treatment, its side effects and the placebo/alternative treatment. The patients could then be randomly divided into two - one which gets the treatment and one which gets the placebo. This is how a lot of trials are being carried out these days.

Finally, I would like to thank you for writing a book in such a non-technical manner that people who are not in the field like me too can understand the underlying concept.

I am sure you have pretty hectic schedule but I would love to hear your opinion on my thoughts.

Looking forward to hearing from you"

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And then I got a prompt response:


"Dear Suvasini,

Tanks for the email and your kind words

I am not sure that people value things less once they get them, but it is an interesting ideas that the endowment effect is larger because of our inability o predict that we will like something less once we have it. Worth checking one of these days

As for the signing of the honor code -- for sure this will only work temporarily. I did not propose it as a long term approach ...

Irrationally yours"

Other than the fact that he isn't as verbose as the book suggests, i haven't quite had much to take home from the email.

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However, i would like to hear your take on the subjects ?