Review: Predictably Irrational, by Dan Ariely - The Objective Standard

New York: HarperCollins, 2008. 304 pp. $25.95 (cloth).

 

For years, conventional economists have argued that average people in the marketplace make economic decisions using careful calculation and deliberation to arrive at the best possible outcome. They gather price information, compare features, weigh advantages and disadvantages, and exercise logical reasoning to maximize their own happiness and wealth. In short, conventional economists argue that most people generally behave rationally.

Not so, say proponents of an emerging field in academic economics. Expressing frustration with the “naïve psychology” of “standard economics” (p. 239), so-called “behavioral economists” study economic behavior through the lens of modern psychology. Viewing the field of economics from the perspective of “how people [do] behave, instead of how they should behave” (p. 239), behavioral economics dispenses with the conventional presumption that people are rational actors and views them as irrational reactors. One of the field’s leading figures, Dan Ariely, a professor at Duke University’s Fuqua School of Business, attempts to explain its academic findings in Predictably Irrational.

With Predictably Irrational, Ariely seeks “to help you fundamentally rethink what makes you and the people around you tick” (p. xii). Describing dozens of field experiments, Ariely explores the phenomenon of people making the same mistakes time and again in predictable ways, such as buying warranties they do not need, succumbing to peer pressure, and spending more money on expensive indulgences than they budget for. In short, says Ariely, people behave irrationally, but predictably so.

Each of Predictably Irrational’s thirteen chapters focuses on one particular irrational way in which people make decisions, describing the experiments that Ariely and his colleagues constructed and carried out to demonstrate the predictability of this behavior. For example, in the book’s opening chapter, the author describes how his test subjects (mostly college students from his home institution) could be driven to prefer product A over product B if they were given the choice between A, B, and a similar but inferior version of product A instead of a choice between just A and B. In another chapter on the mysterious power of “free” products, he describes how test subjects who preferred Lindt chocolates to Hershey’s Kisses by roughly 3-to-1 when they were priced at 15 cents and 1 cent respectively, changed their preferences to 1-to-2 when each was discounted by 1 cent. . . .

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