Predictably Irrational, by Dan Ariely July 21, 2008
Posted by CamdenKiwi in : Miscellany , trackbackIt says a lot about economics, that there have to be studies to show that people do not always, perhaps even often, behave in an economically rational manner. It also says a lot about the lack of realism in modern politics that the ideas put forward in this book are considered revolutionary.
Through a series of studies, mostly on MIT or Harvard undergraduates, no doubt an excellent representative sample for the general public, the author looks at how people make decisions and conduct themselves in economic situation. It is useful that he establishes clear evidence for some pretty obvious things - that its one thing to say you’ll use condoms in a survey, quite another in the heat of the moment, that if the doctor gives an expensive medicine, we’re more inclined to get better than if he just gives some advice (yes, the placebo effect works - otherwise, how would homeopathy ever have any credibility), that if you expect to do well in a test, you may do better than if you expect to fail.
Although the conclusions reached may not be very surprising, it may be revolutionary to bring them to the attention of policymakers and politicians, with evidence to back them up and separate the common sense from the common nonsense.
It does point to simple but potentially effective policy interventions. For instance, if employees had to opt out of company pension schemes rather than opt in, its likely that more would stay in them. As someone who managed to miss out on three years of a fixed salary pension scheme once, through a combination of laziness, mistrust of pension plans and always thinking I’d leave the job soon, I’d have gained from that one.
Given that advertisers and marketers have known a lot of this for a long time, it is also useful for spotting sales techniques and not automatically falling into their traps. For instance, when faced with two different options, and a third option similar to, but less good than, one of them, people are inclined to go for the more attractive of the two which are similar, neglecting the one which does not have an obvious comparator. Knowing that, one can consciously ignore the less attractive, and concentrate on the two different options.
A lot of what we do is not particularly rational. Understanding that gives us a chance to think our way through the mass of ingrained habits and skillful marketing which contribute so much to our choices and actually make some good decisions.
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