“Predictably Irrational”: Book in a Nutshell

I didn’t need to read this fun book to know that we humans often behave in irrational, self-defeating and foolish ways.

But Dr. Dan Ariely, professor of behavioral economics at MIT, whose work is discussed in the New York Times, Scientific American, CNN and NPR, shows that human irrationality is, counterintuitively, quite systematic and predictable–not at all random.

And because smart marketers love predictability, I sum up here what Ariely has found.

Marketing Works Better Than People Realize

Although generic drugs are identical to their name brand counterparts, patients actually get better health outcomes from the latter, because of the power of their thoughts, the so-called “placebo effect,” to heal.

Placebos have been shown to work as well as actual drugs such as anti-depressants or heart medicine. When people are convinced that something will work, it more often does, statistically speaking. Ariely concludes “the perception of value, in medicine, soft drinks, drugstore cosmetics, or cars, can become real value.”

Yet he cautions that this poses moral dilemmas for marketers, who should avoid deception and dishonesty in hyping products. We don’t want our health care systems to spend more on name brands, for example, because of erroneous beliefs that they work better than generics, although that belief may become self-fulfilling.

Honesty Can Be Influenced, Even When People Can Get Away With Dishonesty

People will refrain from dishonesty when they are reminded of moral or legal codes.

Ariely experimented with giving students a test in which they could self-report their answers and found a slight but statistically significant rise in cheating. But when students were asked to do an ostensible “memory recall” assignment first that involved writing down the Ten Commandments, the cheating ended.

Even though the students thought the two tasks were unrelated, their behavior on the test was affected. Another experiment that reduced cheating involved signing a statement referring to “MIT’s honor system,” which, Ariely humorously notes, does not exist.

Just reminding us about the rules keeps many of us in line.

People, Particularly Westerners, Will Sacrifice Pleasure For Uniqueness

While eating out, most people will order something different from their companions, even if it’s not what they really wanted, simply to appear unique. Interestingly, in Hong Kong, the results were the opposite—people would order the same thing, presumably because their culture prizes conformity, not uniqueness.

In both cases, Ariely found that the person who orders first (and thus is uninfluenced by others’ choices), is happiest with his or her meal. Ariely’s advice is to decide what you want before the waiter comes and don’t let others’ choices sway you during order taking.

How does this apply online? Offer a unique feature if you’re selling a commodity product.

When Given Three Options, We’ll Often Choose The Better Of The Two Comparable Options

Ariely calls this the “decoy effect.” His experiment offered an Economist subscription with the choices of: Internet only ($59), print only ($125) or print and Internet ($125). Which would you pick? Most people prefer the last option.  But when you remove the print only option, far fewer people go for the Internet and print subscription, the expensive option.

The print only option served as an effective decoy to push people to choose the better value—the Internet and print subscription. So if you want people to select something, have a closely related decoy that they’ll reject in favor of the one you want them to pick.

Free Offers Possess A Unique, Powerful Allure

Asking for even a tiny amount, such as two cents for a Hershey’s kiss, drastically reduces your chances of getting people to say yes, versus offering it for free.

So whenever you can throw something in for free, do it! Free shipping offers cause me to buy more, although I suspect I’m paying for that shipping somewhere else.

When You’re Trying To Develop Social Relationships With Your Customers, “It’s Just Business” No Longer Applies

Once you cross the line between social and market norms, your customers can easily be personally offended. Think about people’s relationships with community banks compared to the money center banks.

If the relationship is experienced based on market norms, as the big bank relationship is, you expect to be charged late fees for bounced checks, for example.

But social relationships are different—people expect to be given a break for their mistakes. Ariely warns that you can’t have it both ways: “You can’t treat your customers like family one moment and then treat them impersonally—or, even worse, as a nuisance or a competitor—a moment later when this becomes more convenient or profitable.”

Do you agree with these insights from Predictably Irrational or have you seen something different in your own business life? Tell us about it.

If you’re interested in reading about these fascinating findings for yourself, buy the paperback here or buy the Kindle/iPad edition here. (affiliate links)