Predictably Irrational – Dan Ariely

Here are my comments on the book:

Why are we predictably irrational? Dan Ariely, Duke University Professor of Psychology and Behavioral Economics, states that despite our good intentions to act logically and rationally, we will at times veer off course due to our emotions. Examples of this would be jumping at the word “FREE,” valuing things relatively to others when it shouldn’t be the case, and why we’re happy to do certain things but not when we’re paid to do them. Here are some of the points to the book:

 

1) It’s easy to get caught up with keeping up with the Joneses and buy things that you don’t need just to show it off to others. It’s quite understandable that doing this can make you feel good about yourself after being able to show off your fancy new stuff to your friends, family and colleagues. However, I personally feel that once you get started,there’s no end to it and what you’ll end up doing is getting yourself stuck in a rat race. You’ll constantly be on the lookout comparing yourself to others and what they have and how you can one up them. This then requires you to work for the money just to blow it off on some fancy new thing. This is how the cycle starts and repeats. I propose that instead of comparing yourself to others, just compare yourself to who you were yesterday. Life shouldn’t be about comparing yourself to others, being a slave and sucked in to how society tells you who or what to be, but rather it should be about self development and personal growth on your own terms. Relativity helps us make decisions in life. But it can also make us downright miserable. Why? Because jealousy and envy spring from comparing our lot in life with that of others. It was for good reason, after all, that the Ten Commandments admonished, ‘Neither shall you desire your neighbor’s house nor field, or male or female slave, or donkey or anything that belongs to your neighbor.’ This might just be the toughest commandment to follow, considering that by our very nature we are wired to compare. He later states, He is James Hong, cofounder of Hotornot.com rating and dating site. For sure, James has made a lot of money, and he sees even more money all around him. One of his good friends, in fact, is a founder of PayPal and is worth tens of millions. But Hong knows how to make the circles of comparison in his life smaller, not larger. In his case, he started by selling his Porsche Boxster and buying a Toyota Prius in its place. ‘I don’t want to live the life of a Boxster,’ he told the New York Times, ‘because when you get a Boxster you wish you had a 911, and you know what people who have 911s wish they had? They wish they had a Ferrari.’ That’s a lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity.

 

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2) We love FREE stuff! We love free stuff because there’s no perceived risk of losing anything involved as it’s FREE. As free as something may be, the saying, ‘There is no such thing as a free lunch‘ holds true. There’s always an opportunity cost and in addition, you fall victim to the reciprocity bias. Let me give you an example. You’re at the grocery store doing your routine shopping. You look down the aisle and see a line. It piques your curiosity so you head over there. What’s that you see? A worker cooking up and giving some free sample of some hot dogs. You don’t usually eat hot dogs but you question how delicious these hot dogs are and so you line up. Five minutes later, you’re at the front of the line and you’re eating the free hot dog slice. Upon finishing it, you feel bad for taking it and not giving something back in return so you end up putting a pack of hot dogs into your cart. It would appear that the true cost here on FREE is your time (5 minutes) and your money (the hot dogs that you most likely wouldn’t have purchased if it weren’t for that free sample). What is it about free! that’s so enticing? Why do we have an irrational urge to jump for a FREE! item, even when it’s not what we really want? I believe the answer is this. Most transactions have an upside and downside, but when something is FREE! we forget the downside. FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is. Why? I think it’s because humans are intrinsically afraid of loss. The real allure of FREE! is tied to this fear. There’s no visible possibility of loss when we choose a FREE! item (it’s free). But suppose we choose the item that’s not free. Uh-oh, now there’s a risk of having made a poor decision – the possibility of a loss. And so, given the choice, we go for what is free.

 

3) Ever feel like you can’t make a decision because there are too many variables to factor in and when you finally make a decision, the opportunity has already passed you by? Well, you’ve just experienced analysis paralysis. In the book, The Paradox of Choice by Barry Schwartz, Schwartz states that contrary to what we believe with having more freedom and choices, it’s counter-intuitive and it can actually stop us from making a decision. The best advice that I’ve heard to stop overthinking and waiting is to just optimize your decisions. Instead of waiting and researching to look for that perfect option, look for an option that’s just good enough. I personally believe that good enough is perfect. This way I don’t end up spending my precious time and energy thinking about something that, in the long run, may not even be all that important. Give the appropriate amount of energy directly in proportion to the level of importance on that decision. Can’t decide what to order at the restaurant? There’s really no need to spend more than 5 minutes deciding. Applying for a mortgage and deciding between a fixed and variable cost mortgage? That’s something you should definitely spend more than 5 minutes on deciding. A hungry donkey approaches a barn one day looking for hay and discovers two haystacks of identical size at the two opposite sides of the barn. The donkey stands in the middle of the barn between the two haystacks, not knowing which to select. Hours go by, but he still can’t make up his mind. Unable to decide, the donkey eventually dies of starvation. This story is hypothetical, of course, and casts unfair aspersions on the intelligence of donkeys. A better example might be the U.S. Congress. Congress frequently gridlocks itself, not necessarily with regard to the big picture of particular legislation-the restoration of the nation’s aging highways, immigration, improving federal protection of endangered species, etc.-but with regard to the details. Often, to a reasonable person, the party lines on these issues are the equivalent of the two bales of hay. Despite this, or because of it, Congress is frequently left stuck in the middle. Wouldn’t a quick decision have been better for everybody?

 

By Ryan Timothy Lee

 

My rating:
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Check out the book here:
Amazon US
Amazon Canada
Amazon UK

 

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