Book notes - Predictably irrational
Biases and irrational behavior probed through experiments …
Review
This book presents a series of experiments and studies that probe into our irrational behaviors. Recognizing our systematic judgement errors is a first step towards being able to avoid some of them.
Everything is relative
We are good at judging relative value, that is at comparing things, we suck at judging absolute value. We also have the tendency to only compare the things that are easy to compare. With this knowledge our choices can be easily manipulated. Ex. given A, A-, B (where A- is a slightly worse version of A, a decoy) and A and B are not straight forward to compare the tendency would be to choose A.
The base value of things
When we encounter a product we tend to accept the first price that comes before our eyes imprinting. Once the prices are established in our minds they will shape not only present prices but also future prices arbitrary coherence. This price can be manipulated with suggestions anchoring or by assuming other people’s behavior herding. The association of product to price can be broken by rebranding the product as a novel thing with some differentiating characteristics and unlike the existing product or other similar products. We should train ourselves to question repeated behaviors and habits.
Cost of zero
Free comes with a gravitational pull. When choosing between two products, we often overreact to the free one. Most transactions have an up-side and a downside and humans are intrinsically afraid of loss. When something is free we forget the downside.
Market vs social norms
We live in two world, one characterized by social exchanges and the other characterized by market exchanges. There is a delicate balance between the two. Introducing market norms into social exchanges, violates the social norms and hurts the relationships. Once this type of mistake has been committed, recovering a social relationship is difficult. Market norms override social norms more easily than the other way around, it is sufficient to only mention money. Social norms are not only cheaper, but often more effective at motivating people. Ex. More accept willingly to offer services free of charge but refuse to offer the same services at a lower fee.
Decisions under arousal
Much like in “Dr. Jekyll and Mr. Hyde” all rationale goes out the window when under intense emotions. Avoid getting in a situation that requires decision making when under intense emotions specially arousal.
Keeping too many doors open
In modern times people are beset not by a lack of opportunity, but by the abundance of it. We are continually reminded that we can do anything and be anything we want to be. The problem of trying to do too many things is that we spread ourselves too thin both emotionally and financially. What we need is to consciously start closing some of our doors. We need to drop out of committees that are a waste of our time.
Effect of expectations
When we believe beforehand that something will be good, it generally will be good and when we think it will be bad it will be bad. The brain won’t start from scratch at every new situation so it relies on previous experience. We get trapped within our perspective, which partially blinds us to the truth.
Power of price
Placebo effect works because our confidence or faith in the drug, or the procedure and conditioning caused by repeated experiences. Prices can also drive the placebo effect. On the basis of price alone, it is easy to imagine that more expensive product will be better then a cheaper one.
Context of our character
When given the opportunity people will cheat. If we are reminded of morality at the moment we are tempted we are much more likely to be honest. The tendency to cheat is higher in non-monetary transactions, when we deal with money we think about our actions as if we had signed an honor code.