Predictably Irrational: The Hidden Forces That Shape Our Decisions (Summary)
Why would a magazine offer three subscription options: 1) Web-only for $59, 2) Print-only for $125, and 3) Print & Web for $125? Option two seems pointless. But when MIT students were offered these choices, 84% chose the 'deal' of option three. When the 'useless' decoy option was removed, 68% chose the cheaper web-only option. The decoy wasn't useless at all—it was a powerful, invisible force designed to make you choose the more expensive option without even realizing you were being manipulated.
The Zero Price Effect: 'Free!' Makes Us Lose Our Minds
The concept of 'free' isn't just another price point; it triggers a powerful emotional response that makes us irrationally value something far more than we should, often leading us to make poor choices.
Ariely offered students a choice: a fancy Lindt truffle for 15 cents or a Hershey's Kiss for 1 cent. Most chose the superior truffle. But when he dropped the price of both by 1 cent (truffle for 14 cents, Kiss for free), the vast majority irrationally switched to the free Kiss, even though the relative price difference was the same. The allure of 'free' trumped the better value.
The Curse of Anchoring: Our First Impressions are Sticky
We rarely evaluate things in a vacuum. Instead, we rely heavily on the first piece of information offered (the 'anchor') when making decisions, even if that anchor is completely arbitrary.
Ariely asked students to write down the last two digits of their Social Security number. He then asked them to bid on items like a bottle of wine or a cordless keyboard. Students with higher SSN digits consistently bid 60-120% more than those with lower digits, proving that the completely random number had anchored their perception of the item's value.
The High Price of Ownership: Why We Overvalue What We Own
We irrationally place a higher value on things simply because we own them. This 'endowment effect' is driven by our focus on what we stand to lose and our emotional attachment to our possessions.
At Duke University, students who won coveted basketball tickets in a lottery valued them at an average of $2,400. Students who didn't win the tickets were only willing to pay around $175 for one. The mere act of 'owning' the ticket for a short time dramatically inflated its perceived worth by more than tenfold.
Social vs. Market Norms: Never Offer to Pay Your Mother-in-Law for Dinner
We operate under two distinct sets of rules: warm and fuzzy social norms and cold, transactional market norms. When you introduce money into a social relationship, you can kill the goodwill forever.
When lawyers were asked to help needy retirees for a small fee of $30 an hour, most refused—it was a bad deal. But when asked to do the same work for free, the majority agreed. The low payment triggered market norms, making it an insulting offer. No payment triggered social norms, making it a chance to do good.
