Sunday, March 23, 2008

Predictably Irrational:
The Hidden Forces That Shape Our Decisions
By Dan Ariely
Harpercollins; 304 pages; $25.95.

Update: This review now appears also in the San Francisco Chronicle Book Review.

Call me crazy, but I’ve always thought the axiom of academic economics that says our decisions, especially buying decisions, are based on rational choice is itself irrational. Counter-examples are rife in most of world literature, movies and TV shows, as well as psychology since 1890 and the entire advertising industry, which is not notable for critiques appealing to pure reason. There’s abundant evidence, including books from Vance Packard’s 1957 The Hidden Persuaders to Douglas Rushkoff's 1999 Coercion to Martin Howard’s 2005 We Know What You Want that advertisers and retailers thrive on pushing non-rational buttons, as have con artists peddling snake oil, pyramid schemes, Florida land, phony stocks and fake charities, from antiquity to the Internet.

But apparently it takes an official Professor of Behavioral Economics at MIT like Dan Ariely to suggest that “we are really far less rational than standard economic theory assumes. Moreover, these irrational behaviors of ours are neither random nor senseless. They are systematic, and since we repeat them again and again, predictable.”

In this book, Ariely describes experiments that pertain to general conclusions (“Why we often pay too much when we pay nothing,” “why we can’t make ourselves do what we want to do,” “why options distract us from our main objective,” etc.), and then offers extrapolations of why these tendencies are important. He then offers ideas on how to get ourselves under more rational control, individually and by changing organizational or societal structures.

Some of his research I found eye-opening, particularly the experiments involving the suggestibility that words can have. In one experiment, Asian-American women took a math exam. Half were given a preliminary questionnaire with innocuous survey questions that related to gender (opinions on coed dorms, etc); the other half, questions relating to their racial heritage (family history, etc.) The women who got the race-related survey did better on the subsequent math exam than the women who got the gender-related survey, apparently confirming the stereotypes of women as bad in math, and Asian-Americans as smart in math, as suggested just by the topic of whichever survey they were given.

Another group was given a scrambled-sentence puzzle with words “priming the concept of the elderly,” such as “Florida, bingo, ancient.” Then when they were dismissed, they walked more slowly down the corridor than members of a control group. They weren’t, Ariely notes, “themselves elderly people being reminded of their frailty—they were undergraduate students at NYU.” Yet another experiment found that after being asked to list the Ten Commandment—or when they were reminded of the Honor Code they’d agreed to-- subjects were more honest.

Other topics include how we judge (and misjudge) relative value, the power of placebos, the power of price (more ailments are allegedly cured when the subject believes the medicine is expensive), and the gently subversive idea that market forces don’t always regulate the market for the best outcomes.

Most chapters frame the information in terms of the kind of decision-making processes many of us go through in choosing what or whether to buy, though usually in more simplified form than the bewildering blitz of options, questions and information we contend with these days. Since this book is meant for a wide readership, the style is pleasantly conversational and personal, though jargon is sometimes replaced by cliché.

Ariely’s conclusions sometimes make good sense to me, like bundling preventive health care procedures to combat procrastination. But some seem to be too limited in terms of what questions the research suggests, and others too broad. His general assertions—that we tend to underestimate the role of the irrational in our perceptions and decisions, and that if we have some idea of how we are irrational, we’re less helpless and can assert more conscious control—are useful principles to repeat. Even if they’re not at all new ideas, they could well be new to readers of this book.

While Ariely’s stated goal is to understand the decision-making processes behind behavior—“yours, mine and everybody else’s” he may be overreaching in the applicability of his conclusions.

“We all make the same types of mistakes over and over, because of the basic wiring of our brains,” he writes, but he presents no evidence of this causal relationship. It depends on his behavioral experiments being universal. The experiments he presents support the irrationality part of his argument, but I don’t buy the universal predictability of all their specific findings. While these experiments take place in California, New York, Massachusetts, North Carolina and so on, they rarely get off campus, and the experimental subjects (at least the ones he describes) are almost always university students.

That’s a specific demographic group that marketing psychologists study very closely, and pitch their products to in ways that don’t work with other—especially older—consumers. There are several conclusions that Ariely makes (the decisive role of image among peers when choosing food at a restaurant, or the “irrational impulse to chase worthless options” in a game, for instance) that could be quite different according to age or even income and social class. And that’s without even attempting to assess the experiment involving young men, Playboy magazines and a Saran wrap-covered laptop.

In any case the accounts of these experiments are useful as cautionary tales and examples inspiring academic as well as water cooler discussion. As for Ariely’s basic conclusion, addressed as this question—“Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?”—hey, aren’t those economists wild?

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