Dan Ariely has written several books about irrational decision making, including Predictably Irrational and The Upside of Irrationality. His books are both enjoyable and educational. In addition, he has a regular column in the Wall Street Journal called Ask Dan, which has been the basis for many of my blog posts over the past five years.
One of Ariely’s main points is that we often make irrational decisions; here are some examples from his research:
- Relative thinking: When contemplating the purchase of a $25 pen, the majority of subjects would drive to another store 15 minutes away to save $7. When contemplating the purchase of a $455 suit, the majority of subjects would not drive to another store 15 minutes away to save $7. The amount saved and the time involved are the same, but people make very different choices. Ariely tells us to watch out for relative thinking; it comes naturally to all of us.
- The “endowment effect”, which refers to the situation that when we own something, we begin to value it more than other people do. Ariely and Carmon conducted an experiment on Duke students, who sleep out for weeks to get basketball tickets; even those who sleep out are still subjected to a lottery at the end. Some students get tickets, some don’t. The students who didn’t get tickets told Ariely that they’d be willing to pay up to $170 for tickets. The students who did get the tickets told Ariely that they wouldn’t accept less than $2,400 for their tickets. This example highlights three fundamental quirks of human nature. We fall in love with what we already have. We focus on what we might lose, rather than what we might gain. We assume that other people will see the transaction from the same perspective as we do.
- The power of price: Ariely and his team of researchers made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours. When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief. When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief. The more pain a person experienced, the more pronounced the effect. A similar study at U Iowa showed that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs.
- Texting and driving: Almost everybody admits they’ve done it, and it’s not about lack of knowledge. He’s never had someone say they just didn’t know it was dangerous. He believes this behavior embodies the way we’re capable of doing things that can kill us without thinking about the long-term consequences.
So how do you avoid acting irrationally?
Well, that’s where Dan’s current WSJ column comes in handy. Who better to tell us to behave properly than an expert on behaving irrationally?
Here is one of the questions he was asked this week:
As a teacher in an executive education program, I give my students a lot of advice about how to avoid bad habits and biased thinking. But I find that I often fall victim to these things myself, even though I’m aware of the dangers. Do you find that being a behavioral economist makes it easier to behave rationally? —Madison
Behavioral biases affect everyone, including those of us who study them. Biases are like optical illusions: Even when we know what we’re seeing isn’t real, we can’t help seeing it. In my experience, the best strategy is to recognize that I will behave in predictably irrational ways unless I make it easier for myself to act the way I want to.
For example, I want to eat more vegetables, and I know that I’m more likely to actually do it if I find them ready to eat when I open the refrigerator. So I make sure to clean and prepare vegetables in advance, in order to not give myself an excuse to eat something quick and unhealthy instead. Similarly, I know that I’m more likely to go for a morning run if I make an appointment to run with a friend. Designing the right environment for ourselves is the best way to control our own bad tendencies.
Simple, but powerful advice.
Ariely notes that the moment temptation exists around you, it’s very hard to imagine you’ll be able to fight it.
This is applicable in the area of texting and driving. The easiest thing to do would be to create technology that helps us fight temptation — so, for instance, your phone wouldn’t get a signal when you’re in the car.
He also offered a personal example.
When he and his family moved to North Carolina to teach at Duke, he notes that they gave some thought about where they would want to live. The research on commuting was clear: It makes people unhappy. So they decided to live very close to the university.
Those are two great examples of creating the right environment to produce the desired behavior.
I’ll have to think of how to create the right environment so that I am not constantly checking my blog stats, which I recognize as totally irrational behavior. It seems like taking the WordPress app off of my phone is not practical, since I may need the app to do a quick edit to one of my posts.
Hmmm…. what would Dan do…
*image from Industrial Distribution