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)
Join the discussion 11 Comments
This was a fun read. As I was reading I was thinking how the intelligent human brain can also be so “predictably irrational” and dumb 🙂 We are so incredibly easy to figure out and easy to manipulate sometimes. Maybe be a bit scary, isn’t it?
Thanks for this book extracts and have a great and happy New Year!
I got a kick out of this book, too, Sylviane. it’s funny because as you read some of this stuff, you think “no way, that would never be me!” And yet I still see myself doing the same (irrational) things. I don’t think reading the book has made me any smarter 🙂
Very interesting Carol. I do find that offering a unique product gets the best results especially on the internet where everyone is offering many of the same things. The next best is free offers as it gives people a chance to try it. People don’t want to spend money randomly so offering something free actually helps them make a decision quicker. At least that’s been my experience. Anyway, thanks for the info. I may check out the book. Barbara
Thanks, Barbara, I enjoyed this book too. Sometimes it’s just fun to read about the weird things we do when we make decisions even though we think we’re being so smart!
Hey Carol and Linda,
Now that was interesting to say the least. I think we are all much more predictable then we think.
I had to chuckle when you mentioned that people may order something different from the first person even if they wanted the same thing. Heck, not me. I want what I want and I don’t care if someone else is getting it or not. That’ not going to make me change my mind I’m afraid.
I do think offering something unique online will benefit you more. If it’s a physical product I do love trying it first and trust me, if it’s good I’ll buy it. Oh and it works great for software too.
Thanks ladies and hope you both had a wonderful Christmas.
Funny you said that, Adrienne, because I can totally see myself doing that! When someone orders something, sometimes I think…. oh, well I don’t want to get the same thing, that’s just weird! it will look like I’m “copying” them! So then I get something else. I guess I’m just as predictably crazy as everyone else in that book 🙂
Hey Carol and Linda!
I love reading stats! Thanks for sharing them. I didn’t realize about ordering food…that stuck in my mind. Lots of times I have to order the same food, otherwise I want to have my husband’s dinner lol. Am I unique? Or do I want to be Unique? I don’t really know, but I guess I just am if I can honestly answer this question.
It is not because of an attention grabber, but it is because I just like being who I am and don’t give a hoot if no one likes it. Take for example the way I dress. I love vintage clothes, so I wear them or mix it up with jeans. Some people will compliment me, but I tell them where to get the deal. I don’t take it personally.
When it comes to marketing, yes, we do need our special edge. The main thing is that we always have to be ourselves.
I like the last part of social media. Yes, it is all social and wonderful, but it is OK to share with your friends in an appropriate manner that you are launching something once in a while: The Pareto Principle.
Thanks for this great post,
If there’s one thing you can take away from this book it’s that people are weird, Donna! Oh, and yes, I am fully including myself in that 🙂 We do what we do and sometimes none of it makes sense. But it always makes it interesting!
You’re welcome, Donna. The ordering thing is so funny. I’m disapointed sometimes if someone gets the same thing because I want to see what the other choices are like. Surprisingly, too, in the study it was microbrews,not even food.
Oh my, do they have us all figured out. A lot of their marketing techniques don’t always work on me. I usually dig my heals in deeper and purposely don’t budge. But I can see many others who get easily swayed in to doing exactly as they want them to. We should know they are all smarter than most of us. Like the reference to the MIT honor system and they should know they are being had on this one. Shows you can influence through correct marketing.
I think the big lesson for us as marketers is that sometimes you just never know what people will do 🙂 They don’t act in ways that we might think of as logical or common sense. But there are definitely patterns we can see and use if we’re smart!