Notes & Quotes: Predictably Irrational by Dan Ariely

The following are my favorite quotes from Dan Ariely's Predictably Irrational: The Hidden Forces That Shape Our Decisions.
  1. Humans rarely choose things in absolute terms.  We don't have an internal value meter that tells us how much things are worth.  Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.
  2. Most people don't know what they want unless they see it in context.
  3. "High priced entrees on the menu boost revenue for the restaurant -- even if no one buys them.  Why?  Because even though people generally won't buy the most expensive dish on the menu, they will order the second most expensive dish." Gregg Rapp, restaurant consultant
  4. We are always looking at the things around us in relation to others.
  5. We not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable -- and avoid comparing things that cannot be compared easily.
  6. Jealousy and envy spring from comparing our lot in life with that of others.
  7. It's easy for a person to add $200 to a $5000 catering bill for a soup entree, when the same person will clip coupons to save 25 cents on a one-dollar can of condensed soup.
  8. If we just thought about it in this broader perspective, we could better assess what we could do with the $3000 that we are considering spending on upgrading the car seats.  Would we perhaps be better off spending it on books, clothes, or a vacation?  Thinking broadly like this is not easy, because making relative judgments is the natural way we think.
  9. The more we have, the more we want.  And the only cure is to break the cycle of relativity.
  10. Understand that relativity is everywhere, and that we view everything through its lens -- rose-colored or otherwise.
  11. Once we buy a new product at a particular price, we become anchored to that price.
  12. Our first decisions resonate over a long sequence of decisions.
  13. If you stopped to think about this, it would not be clear whether you should be spending all this money on coffee at Starbucks instead of getting cheaper coffee at Dunkin' Donuts or even free coffee at the office.  But you don't think about these trade-offs anymore.  You've already made this decision many times in the past, so you now assume that this is the way you want to spend your money.
  14. We can actively improve on our irrational behaviors.  We can start by becoming aware of our capabilities.
  15. You should train yourself to question your repeated behaviors.
  16. The power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come.
  17. Socrates said that the unexamined life is not worth living.
  18. What consumers are willing to pay can easily be manipulated, and this means that consumers don't in fact have a good handle on their own preferences and the prices they are willing to pay for different goods and experiences.
  19. Demand is not, in fact, a completely separate force from supply.
  20. The sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions -- not at all a reflection of our true preferences our our level of demand.
  21. Given the choice, we go for what is free.
  22. If we spent half an hour filling out a long form for a tiny rebate, there is something else that we are not doing with our time.
  23. Want to draw a crowd?  Make something FREE!  Want to sell more products?  Make part of the purchase FREE!
  24. This diminishing sensitivity to the pain of paying means that the first dollar we pay will cause the highest pain, the second dollar will cause us less, and so on, until we feel just a tiny twinge for, say, the forty-seventh dollar.
  25. As Margaret Clark, Judson Mills, and Alan Fiske suggested a long time ago, the answer is that we live simultaneously in two different worlds -- one where social norms prevail, and the other where market norms make the rules.
  26. When social norms and market norms collide, trouble sets in.
  27. The immortal words of Woody Allen, "The most expensive sex is free sex."
  28. People will work more for a cause than for cash.
  29. Once market norms enter our considerations, the social norms depart.
  30. Offering people a gift, even a small one, is sufficient to get them to help; but mention what the gift cost you, and you will see the back of them faster than you can say market norms.
  31. We live in two worlds: one characterized by social exchanges and the other characterized by market exchanges.  And we apply different norms to these two kinds of relationships.  Moreover, introducing market norms into social exchanges, as we have seen, violates the social norms and hurts the relationships.
  32. When a social norm collides with a market norm, the social norm goes away for a long time.
  33. In this 24/7 work environment social norms have a great advantage: they tend to make employees passionate, hardworking, flexible, and concerned.  In a market where employees' loyalty to their employers is often wilting, social norms are one of the best ways to make workers loyal, as well as motivated.
  34. If companies want to benefit from the advantages of social norms, they need to do a better job cultivating those norms.
  35. Cash will take you only so far -- social norms are the forces that make a difference in the long run.
  36. Money, as it turns out, is very often the most expensive way to motivate people.  Social norms are not only cheaper, but often more effective as well.
  37. Life with fewer market norms and more social norms would be more satisfying, creative, fulfilling, and fun.
  38. If you take multiple cookies, there will be fewer for the other people in your office.  But if Susan offers her cookies for free, I am willing to bet that you will think about social justice, the consequences of appearing greedy, and the welfare of your coworkers.  Once money is introduced into the exchange, you stop thinking about what's socially right and wrong, and you simply want to maximize your cookies intake.
  39. When the Starbursts cost a cent apiece, the average number of candies per customer was 3.5, but when the price went down to zero, the average went down to 1.1 per customer.
  40. When price is not a part of the exchange, we become less selfish maximizers and start caring more about the welfare of others.
  41. We are caring social animals, but when the rules of the game involve money, this tendency is muted.
  42. Effort is somewhere on the spectrum between market and social norms.
  43. If a company can be charged for spewing poisons into the environment, it might well decide, after a cost-benefit analysis, that it can go ahead and pollute a lot more.
  44. When public policy or environmental issues are at stake, our task is to figure out which of the two -- social or market norms -- will produce the most desirable outcome.
  45. Every one of us, regardless of how "good" we are, underpredicts the effect of passion on our behavior.
  46. Sexual arousal is familiar, personal, very human, and utterly commonplace.  Even so, we all systematically underpredict the degree to which arousal completely negates our superego, and the way emotions can take control of our behavior.
  47. Unless we understand how we might react in an emotional state, we will not be able to predict this transformation.
  48. Avoiding temptation altogether is easier than overcoming it.
  49. Sumi plunged her hands into a bucket of ice for two minutes (we did this on advice of our birth coach, who swore to us that the resulting pain would be similar to the pain of childbirth).
  50. We need to explore the two sides of ourselves; we need to understand the cold state and the hot state; we need to see how the gap between the hot and cold states benefits our lives, and where it leads us astray.
  51. Without precommitments, we keep on falling for temptation.
  52. What we truly need is a method to curb our consumption at the moment of temptation, rather than a way to complain about it after the fact.
  53. Most of us find the allure of immediate gratification so strong that it wrecks our best-laid plans.
  54. Email is very much like gambling.  Most of it is junk and the equivalent of pulling the level of a slot machine and losing, but every so often we receive a message that we really want.
  55. It's useful to look for tricks that match immediate, powerful, and positive reinforcements with the not-so-pleasant steps we have to take toward our long-term objectives.
  56. Ralph Keeney recently noted that America's top killer isn't cancer or heart disease, not is it smoking or obesity.  It's our inability to make smart choices and overcome our own self-destructive behaviors.  Ralph estimates that about half of us will make a lifestyle decision that ultimately lead to an early grave.
  57. As soon as we begin thinking about giving up our valued possessions, we are already mourning the loss.
  58. It is difficult for us to imagine that the person on the other side of the transaction, buyer or seller, is not seeing the world as we see it.
  59. We become partial owners even before we own anything.
  60. Ownership is NOT limited to material things.  It can also apply to points of view.  Once we take ownership of an idea -- whether it's about politics or sports -- what do we do?  We love it perhaps more than we should.  We prize it more than it is worth.  And most frequently, we have trouble letting go of it because we can't stand the idea of its loss.  What are we left with then?  An ideology -- rigid and unyielding.
  61. The is NO known cure for the ills of ownership.
  62. In the end, the buyers didn't want our home.  They wanted theirs.  This was a very expensive lesson, and I certainly wish we had a better sense of the effect of our modifications on potential buyers. 
  63. Our propensity to overvalue what we own is a basic human bias, and it reflects a more general tendency to fall in love with, and be overly optimistic about, anything that has to do with ourselves.
  64. In running back and forth among the things that might be important, we forget to spend enough time on what really is important.
  65. Choosing between two things that are similarly attractive is one of the most difficult decisions we can make.
  66. If you tell people up front that something might be distasteful, the odds are good that they will end up agreeing with you -- not because of their experience tells them so but because of their expectations.
  67. When the coffee ambiance looked upscale the coffee tasted upscale as well.
  68. That's what marketing is all about -- providing information that will heighten someone's anticipated and real pleasure.
  69. A stereotype is a way of categorizing information, in the hope of predicting experiences.  The brain cannot start from scratch at every new situation.  It must build on what it has seen before.  For that reason, stereotypes are not intrinsically malevolent.
  70. The likelihood of agreement about "the facts" becomes smaller and smaller as personal investment in the problem grows.
  71. Expectation is an important part of the way we experience music.
  72. We don't really understand the role expectations play in the way we experience and evaluate art, literature, drama, architecture, food, wine -- anything, really.
  73. Placebo comes from the latin for "I shall please."  The term was used in the fourteenth century to refer to sham mourners who were hired to wail and sob for the deceased at funerals.
  74. Before recent times, almost all medicines were placebos.  Eye of the toad, wing of the bat, dried fox lungs, mercury, mineral water, cocaine, an electric current: these were all touted as suitable cures for various ailments.  When Lincoln lay dying across the street from Ford's Theater, it is said that his physician applied a bit of "mummy paint" to the wounds.  Egyptian mummy, ground to a powder, was believed to be a remedy for epilepsy, abscesses, rashes, fractures, paralysis, migraine, ulcers, and many other things.  As late as 1908, "genuine Egyptian mummy" could be ordered through the E. Merck catalog -- and it's probably still in use somewhere today.
  75. When researches tested the effect of the six leading antidepressants, they noted that 75% of the effect was duplicated in placebo controls.
  76. In general, two mechanisms shape the expectations that make placebos work.  One is belief -- our confidence or faith in the drug, the procedure, or the caregiver.  The second mechanism is conditioning.  The body builds up expectancy after repeated experiences and releases various chemicals to prepare us for the future.
  77. At $2.50 almost all our participants experienced pain relief from the pill.  But when the price was dropped to 10 cents, only half of them did.
  78. The message on the bottle as well as the price was arguably more powerful than the beverage inside.
  79. If we see a discounted item, we will instinctively assume that its quality is less than that of a full-price item -- and then in fact we will make it so.
  80. People in general are starting to understand that the offers companies put before us are in their best interest and not ours.
  81. Even when we offered $50, only 19% of passersby stopped and took a bill.  We were surprised and slightly disappointed with this low level of trust; 19% is not a high level of success, particularly when free money is (literally) on the table.
  82. A few individuals get greedy and use more than their share, the system of consumption becomes unsustainable, and in the long term, everybody loses.
  83. Social scientists refer to such betrayers of social contracts as "defectors."
  84. In the absence of cooperation among all players in protecting such resources, a small number of misbehaving entities can have a devastating effect on everyone.
  85. Distrust is infectious.
  86. Just a few bad players in the market can spoil it for everyone else.
  87. The participants liked the stereo so much more if they were told that the information they read came from an unbiased source such as Consumer Reports.
  88. Mistrust in marketing information runs so deeply that it colors our entire perception -- even in the face of firsthand, direct experience -- causing us to enjoy the experience much less that we otherwise would.
  89. A promising way for companies to create trust is by proactively addressing consumers' complaints.
  90. He simply wanted to make sure that his company followed the moral principles he wanted his kids to live by.  After hearing this, I went and bought my first pair of Timberland shoes.
  91. Thanks to shortsightedness and individual greed, the public commons (in this case, in the form of financial systems, government, and the economy as a whole) have suffered a great tragedy.
  92. Companies that want to be successful will heed the example of Timberland and realize that honesty, transparency, conscientiousness, and fair dealing should be bedrock corporate principles.
  93. Every year, employees' theft and fraud at the workplace are estimated at about $600 billion.  That figure is dramatically higher than the combined financial cost of robbery, burglary, larceny-theft, and automobile theft. (totaling about $16 billion in 2004)
  94. In the Fortune 500 companies about 20% of the top three positions are held by graduates of the Harvard Business School.
  95. When given the opportunity, many honest people will cheat.
  96. The students who had been asked to recall the Ten Commandments had not cheated at all.  They averaged three correct answers -- the same basic score as the group that could not cheat, and one less than those who were able to cheat but had recalled the names of the books.
  97. The effect of signing a statement about an honor code is particularly amazing when we take into account that MIT doesn't even have an honor code.
  98. People cheat when they have a chance to do so, but they don't cheat as much as they could.
  99. When we are removed from any benchmarks of ethical thought, we tend to stray into dishonesty.
  100. When we look at the world around us, much of the dishonesty we see involves cheating that is one step removed from cash.
  101. Upton Sinclair once noted, "It is difficult to get a man to understand something when his salary depends on his not understanding it."
  102. We need to wake up to the connection between non-monetary currency and our tendency to cheat.  We need to recognize that once cash is a step away, we will cheat by a factor bigger than we could ever imagine.
  103. The first person to order beer in the sequential group was the happiest of his or her group and just as happy as those who chose their beers in private.
  104. Individuals more concerned with portraying their own uniqueness were more likely to select an alcoholic beverage not yet ordered at their table in an effort to demonstrate that they were in fact one of a kind.
  105. People are sometimes willing to sacrifice the pleasure they get from a particular consumption experience in order to project a certain image to others.
  106. Getting people to order anonymously is most likely the cheapest and simplest way to increase the enjoyment derived from these experiences.
  107. Standard economics assumes that we are rational -- that we know all the pertinent information about our decisions, that we can calculate the value of different options we face, and that we are cognitively unhindered in weighing the ramifications of each potential choice.
  108. We are far less rational in our decision making than standard economic theory assumes.  Our irrational behaviors are neither random nor senseless -- they are systematic and predictable.  We all make the same types of mistakes over and over, because of the basic wiring of our brains.
  109. Wouldn't economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?
  110. The fact that we make mistakes also means that there are always ways to improve our decisions.
  111. As long as these mechanisms provide more benefits than costs, we should consider them to be free lunches -- mechanisms that provide net benefits to all parties.
  112. We are pawns in a game whose forces we largely fail to comprehend.  We usually think of ourselves as sitting in the driver's seat, with ultimate control over the decisions we make and the direction our life takes; but, alas, this perception has more to do with our desires -- with how we want to view ourselves -- than with reality.
  113. Businesses and policy makers could revise their thinking and consider how to design their policies and products so as to provide free lunches.
If you liked the quotes above, consider giving the book a read.