Excerpts & Key-takeways
The Zero effect
Zero is an emotional hot button: a source of irrational excitement.
How could something be nothing?
Dan Ariely, in his experiment, offered two kinds of chocolate: Lindt truffles for 15p and Hershey’s Kisses for 1p. Approximately, 73% of the people chose the Lindt chocolate, while 27% chose the Hershey’s. You will be surprised to know how “free” would change the outcome. He repeated the experiment and reduced the prices of both chocolates by 1p. The Lindt was now offered for 14p while the Hershey’s for free. 69% of people chose the Hershey’s chocolate.
Irrationality #1
According to standard economic theory, the price reduction should not have led to a change in behaviour, but in real life it does. Based on this experiment, it is clear that things become very appealing once they become free.
Social norms vs. Market norms
We live simultaneously in two different Worlds: one where social norms prevail, and the other where market norms make the rules.
When you freely volunteer to help someone because you care, you are operating in the world of social norms. When money is mentioned where you exchange goods and services, you are playing by the rulebook of market norms.
Irrationality #2
Market norms automatically make you cold. Because you then do something when you are compensated and only to an extent you are compensated for. Whereas, no one is offended by a small gift. Because, even small gifts keep us in the social exchange world and away from market norm.
Rampant Consumerism
How much do we lose when our fleeting impulses deflect us from long-term goals? How much is our health affected by those missed appointments and our lack of exercise? How much of our wealth is reduced when we forget our vow to save more and consume less? Why do we lose the fight against procrastination so frequently?
Trading rationality for social passion/temptation.
“When he’s gripped by passion, his emotions may blur the boundary between what’s right and what’s wrong” Fighting temptation before it arises than after it has started to lure you in, is the greatest pre-commitment to yourself. We are the makers of intangibles. But igniting a social passion to educate oneself on resisting temptation and instilling self-control, is not that simple.
Irrationality #3
3 irrational quirks in our human nature
– We fall in love with what we already have. – We focus on what we may lose, rather than what we may gain. – We assume other people will see the transaction from the same perspective as we do.
We are all susceptible to irrelevant influences from our immediate environment. Irrelevant emotions, shortsightedness and other forms of irrationality. If we all make systematic mistakes in our directions, then why not develop new strategies, tools and methods that can help us make better decisions and as a consequence, achieve what we desire.
Irrationality #4
Beliefs and Conditioning
The truth about placebos is that they run on the power of suggestion. They are effective because people believe in them. You see your doctor and you feel better. You pop a pill and you feel better. And if your doctor is a highly acclaimed specialist, or your prescription is for a new wonder drug of some kind, you feel even better.
The act of Ventromedial prefrontal cortex
The body builds up expectancy after repeated experiences and releases various chemicals to prepare us for the future. Stripping away our preconceptions and our previous knowledge may not be possible but we can start by acknowledging the fact that we are all biased.
Irrationality #5
I read Predictably Irrational about 3 years ago and it was the first time I was exposed to Dan Ariely’s works. I have always found his work and writing intellectually rewarding ever since. "We are presumed to make logical and sensible decisions but we are largely irrational, not noble in reason, not infinite in faculty, and rather weak in apprehension. Think how hard physics would be, if particles could think." Mind-blowing, isn't it?