Predictably Irrational -Book Review
1 April 2010
Dr. Moria Levy
The book "Predictably Irrational" 2008, was written by Dan Ariely. The book builds upon the teachings of Tversky and Kahneman, exploring how our decisions exhibit bias under conditions of uncertainty and emphasizing their non-uniform rationality. Ariely goes further, asserting that our decisions aren't merely irrational and represent predictable biases. Through a series of experiments conducted with colleagues in the United States, Ariely sheds light on captivating aspects of human behavior.
Across the various chapters, Ariely outlines diverse biases, discusses experiments validating their existence, and explores potential consequences. It's worth noting that some of these phenomena may be retrospectively familiar. Still, the book introduces novelty through scientific proof and emphasizes a) the consistency of their occurrence and b) their categorization as decision-making biases.
In this comprehensive work, I have focused on the organizational dimension—identifying biases crucial for managers and those involved in knowledge management. The summary provides a glimpse into conclusions in these specific areas.
One is encouraged to read the entire book to delve into examples, deepen comprehension, and gain a broader understanding of human biases beyond organizational contexts. Notably, the book is written in a fluid and accessible manner, ensuring an enjoyable and understandable reading experience.
Biases and Their Significance:
Relativity: Humans tend to prefer easily comparable choices. Faced with three options, if two are closely aligned, and the third is not, we tend to favor the comparison between the easily comparable pair, overlooking the potentially superior third alternative. For example, Ariely illustrates this with three newspaper subscription choices: an online subscription at a specific cost, a printed subscription at a higher price, and a combined subscription (print and online) at the online subscription cost. People often find it challenging to compare online and printed subscriptions directly, leading them to compare the combined and printed subscriptions. Consequently, the combined subscription is chosen as it offers more value at the same price. Notably, significantly fewer individuals opt for the online subscription in experiments without a combined option. Recognizing bias is crucial for service providers and recipients to enhance rational decision-making amidst tempting alternatives.
Anchors: Aligned with economic principles, Ariely introduces the concept of arbitrary consistency regarding pricing. Once an initial price is set as an anchor in our minds, it becomes the benchmark for comparing both current and future costs. Additionally, Ariely suggests that even unrelated numerical values, if imprinted close to our thought process, can serve as anchors. This anchoring phenomenon extends beyond pricing to other methodologies and ideas. In organizational contexts, it holds significance—introduce your concepts early to establish them as anchors. Propose cost estimates and quotes preemptively to set a reference point before the counterpart attempts their assessment. Understanding and leveraging anchors are critical for effective decision-making in businesses and organizations.
The Herd Phenomenon: The impact of group dynamics on individual choices is a familiar concept, but Ariely's experiments reveal its significance on multiple levels. In a restaurant setting, if individuals write down their food preferences and submit them to the server, there is a significantly higher likelihood of uniformity in the orders. Ariely also introduces the concept of self-herding, where individuals judge the goodness or badness of behavior based on their past actions. Recognizing this, Ariely suggests paying closer attention to our initial choices, which often predict future inclinations. As managers and knowledge custodians, understanding the herd phenomenon is crucial. During brainstorming sessions, encouraging individuals to generate ideas individually before sharing them fosters diverse thinking. Leveraging the positive behaviors of change agents without uniform implementation among all employees is key. Additionally, recognizing the powerful influence of brand perception is essential for managers, and cultivating a strong brand presence is equally important for service providers.
The "Free" Bait: The allure of gifts can introduce bias, as the perception of zero cost becomes a significant factor. People tend to favor an alternative simply because it comes with a gift, even if it is not their initial preference. The emotional satisfaction derived from the concept of "free" is potent. Service providers can strategically use this on a business level, while service recipients should exercise caution. Being aware of this bias can help mitigate its impact to some extent.
Social Norms: Bias associated with social norms often prompts positive behavior, leading us to provide free services to neighbors, the vulnerable, or even in a workplace context. Interestingly, this bias also affects relationship dynamics. Transitioning from a social norm-based relationship to a business trade relationship is easy, but reverting to the original state is challenging. Organizations must be cautious in leveraging this bias, as it can be exploited in their interactions with employees and customers. Understanding that this social aspect is reciprocal is essential for organizations, as customers and employees may seek favors or relief based on social norms. Organizations must decide whether they operate purely as a business or incorporate a "social" aspect, accepting the associated implications. Ariely suggests that rewarding through gifts strengthens social connections, emphasizing the value of investing in these connections for long-term loyalty.
The "Tomorrow" Effect: Individuals often struggle to discipline themselves for long-term benefits, succumbing to immediate temptations. This paradox is particularly relevant in management and knowledge management, where long-term investment is essential. Ariely proposes a solution based on advance commitment, emphasizing that managers are aware of the challenges in disciplining for the future and commit resources and actions in the present. This proactive commitment increases the likelihood of realizing long-term goals.
Asymmetry in Evaluation: In contrast to the expectation of a uniform market value for items, Arieli uncovers a bias resulting in asymmetry, where the seller often perceives a higher value for their service or object than the buyer. This bias is not about inflating prices for negotiation but rather stems from an internal, genuine assessment. Individuals tend to evaluate their possessions highly, considering the potential loss in any change. At the same time, buyers focused on what they stood to lose (the opportunity cost of spending money) and viewed the situation differently. This disparity creates asymmetry and potential friction. Notably, people tend to assume the other party shares their perspective. Arieli suggests sellers adopt the standpoint of not being the owner during transactions for more equitable agreements.
Open Doors: Individuals, both on a personal level and within organizational contexts, prefer to have alternative courses of action available beyond their current choices. Committing to a single solution is challenging, and individuals often value the option to keep doors open, even when economically unwarranted. In the current era of abundant alternatives, the challenge intensifies. At the organizational level, evaluating the cost of deliberation versus the value of keeping doors open is crucial to managing this tendency, though more is needed to solve the issue altogether.
Interpretations: When two individuals analyze an event, their interpretations seldom align. Pre-existing beliefs and expectations heavily influence how events are perceived. Arieli's experiments demonstrate that even preliminary information significantly impacts preferences and overall experiences. In a business and organizational context, investing in brand perception is emphasized. Internally, fostering dialogue and alignment before and during changes can enhance the identification and acceptance of decisions.
Honesty: While most people refrain from outright theft, Arieli's experiments reveal a vulnerability when money is transformed into a different form, making temptation and dishonesty more likely. This holds for office supplies, test fraud, tax evasion, and similar scenarios. Addressing this issue is complex, but discussions about values can be a partial solution. Despite being challenging to implement, engaging in conversations about honesty and values helps curb dishonest behavior, even if it doesn't eliminate it.
The various biases explored in the book transition our behavior from rational to emotional, and, notably, many individuals exhibit similar irrational tendencies. The recurring advice throughout the book emphasizes awareness to gain control over biases. While not an easy undertaking, understanding these biases at a deeper level, as presented in the book, contributes to increased awareness. Recommending a revisit to the book for a thorough understanding of biases and the potential for heightened awareness. While implementation may pose challenges, the effort is deemed worthwhile.