We may fail to navigate all the traps that undermine decision-making, but it helps to know what they are, argues Dan Ariely.
Predictably Irrational is a worryingly long shopping list of all the traps we fall into when making decisions. While only offering a handful of actual solutions, the act of reading the list is humbling, and strips away much of the overconfidence that is, at root, to blame for much of our errors.
It was written by cognitive psychologist and professor of behavioural economics Dan Ariely. He can regularly be found at the Fuqua School of Business, the Centre for Cognitive Neuroscience, the Department of Economics, MIT’s Media Lab and on the stage at TED, of course.
Let’s start with our dependence on comparisons for decision-making. This might be a rational behaviour if we did it properly, but our brains are too lazy for that.
Let me give you an example. You’re at a party, and hoping to meet a new love interest. You’re much more likely to ‘get lucky’ (as it were) if you take an ugly mate along to the party with you, instead of going alone.
Instead of undertaking the lengthy job of assessing our hotness against all the different looking people in the room, your chosen mate can just flick their eyes over your friend and see that we are clearly the better choice.
Our brains’ lazy dependence on comparison is capitalised on by cold-hearted companies every single day.
Brands make expensive decoy products that make their main products look cheaper, or they release an entry-level product just to get your eyeballs on the next model up, and soon you’re saving up for a top-of-the-range prestige limited-edition monstrosity.
Freebies. We love freebies. Just the word ‘free’ sends our sanity out of the window.
Nope. Our brains associate any price with risk – if we choose to buy the wrong thing, we risk losing our money.
So, it follows that we love free stuff because it feels safe. But that doesn’t make it good. When Amazon offers us free delivery if we just buy one more book, who do you think is getting the best deal? It’s not us, is it? No one ever stuck it to Amazon by ordering more books.
Hilariously, our brains will latch onto the last number we heard, whether it was a phone number or the level we parked our car on, to decide how much something is worth.
Yes. Our minds look for anchors on which to base our estimates. In a study on this phenomenon, people were asked to write down the last two digits of their social security numbers and then bid on an auction item. Those with high digits (8/9) were willing to pay more for the item than those with low digits.
By putting out ‘anchoring’ prices to make their products seem either like a total bargain, or high-end and pricey as they see fit, with almost no relationship to the actual value of the product. This gamification of pricing makes the market impossible to navigate rationally, and so we play right into the hands of the brands running the show.
The other traps Ariely lists are likely to be truer for some people than others. But there is usefulness in being aware of all of them. To summarise the rest:
1. We place value in ownership. That is to say that the seller of a pair of concert tickets will value them much higher than a buyer, simply because he already owns them. As a rule, people disproportionately value what they stand to lose. For the seller, it’s the experience of the concert; for the buyer, it’s what else they could do with the money.
2. Our expectations guide our actions. This explains why medicines priced at £2.50 each work better than the same tablet priced at 10p each. And why just hearing words such as ‘bingo’, ‘ancient’ or ‘retirement home’ will make you walk slower.
3. Mixing business with pleasure is bad for both. We fall into different sets of behavioural norms according to our setting. Market (commercial) norms allow us to be upfront about money and selfish in asking for what we want. Social norms encourage us to see things from other people’s perspectives, and be more generous. Knowing which setting we are in is key to successful negotiation and decision-making.
4. The thought of honesty keeps us honest. Given the choice between cheating in an exam and winning a prize, or being honest and losing, most people will choose to cheat. But if they recite the Ten Commandments first, the level of dishonesty drops to zero.
5. Our short-term brains win out over our long-term plans. While we all know that healthy eating and saving are good for us, we don’t need much persuasion to order a pricey and fatty takeaway. This can be mitigated, though, by breaking down our long-term goals into regular bitesize pieces which remove the pressure of the big scary long-term goal.
6. We over-value options. While having options is seen as a sign of success, it can actually do us harm, by stopping us from committing to any one path. It’s better to choose what is most important to us, and to close the door on things that might distract from it.
“Comparison is the enemy of happiness.”
“The best things in life are free.”