Tag Archives: dan-ariely

Mundane Decisions and Premature Deaths

Deaths in the United States res­ult­ing from “fairly mundane per­son­al decisions” have ris­en from a rate of around 10% of all pre­ma­ture deaths a cen­tury ago to 44.5% today*. This shift sug­gests that by improv­ing our decision-mak­ing abil­it­ies, we can dra­mat­ic­ally reduce a main cause of pre­ma­ture death: ourselves.

44.5% of all pre­ma­ture deaths in the US res­ult from per­son­al decisions – decisions that involving among oth­ers smoking, not exer­cising, crimin­al­ity, drug and alco­hol use, and unsafe sexu­al beha­vi­or. […]

Using the same meth­od to exam­ine causes of death in 1900, [the research­er, Ral­ph Keeney] finds that dur­ing this time only around 10% of pre­ma­ture deaths were caused by per­son­al decisions. Com­pared to our cur­rent 44.5% of pre­ma­ture deaths caused by per­son­al decisions, it seems that on this meas­ure of mak­ing decisions that kill ourselves we have “improved” (of course this means that we actu­ally got much worse) dra­mat­ic­ally over the years. And no, this is not because we’ve become a nation of binge-drink­ing, mur­der­ous smokers, it’s largely because the causes of death, like tuber­cu­los­is and pneu­mo­nia (the most com­mon causes of death in the early 20th cen­tury) are far more rare these days, and the tempta­tion and our abil­ity to make erro­neous decisions (think about driv­ing while tex­ting) has increased dra­mat­ic­ally.

What this ana­lys­is means is that instead of rely­ing on extern­al factors to keep us alive and healthy for longer, we can (and must) learn to rely on our decision-mak­ing skills in order to reduce the num­ber of dumb and costly mis­takes that we make.

via @kylecameron

*Look­ing exclus­ively at 15- to 64-year-olds, this becomes 5% in 1900 and 55% in 2000, accord­ing to Thomas Goetz.

Financial and Public Incentives to Perform: What Works

Large bonuses and salar­ies are in place to attract prime tal­ent and as an incent­ive to improve per­form­ance, goes con­ven­tion­al wis­dom and the bankers’ rhetoric. How­ever recent research by Dan Ari­ely (author of Pre­dict­ably Irra­tion­al) and col­leagues sug­gests that while large pay will attract the best tal­ent, large per­form­ance-based bonuses may hinder super­i­or per­form­ance.

Inter­est­ingly big bonuses suc­ceeded in increas­ing per­form­ance only when the tasks under­taken were mech­an­ic­al in nature (e.g. tap­ping a key as fast as pos­sible) but not when they were cog­nit­ive. When tasks were con­duc­ted in pub­lic (pub­lic scru­tiny as a task motiv­at­or), per­form­ance did increase.

Like money, social pres­sure motiv­ates people, espe­cially when the tasks require only effort and not skill or think­ing. But at some point, too much of it over­whelms the motiv­at­ing influ­ence.

If our tests mim­ic the real world, then massive bonuses clearly don’t work. They may not only cost employ­ers more but also dis­cour­age exec­ut­ives from work­ing to the best of their abil­it­ies. The fin­an­cial crisis, per­haps, did­n’t hap­pen in spite of the bonuses, but because of them.

The Transformative Power of a Narrative

Can a nar­rat­ive attached to an every­day object increase its object­ive value? That was the ques­tion posed by Rob Walk­er (author of The New York Times’ Con­sumed column) and Joshua Glenn (author of Tak­ing Things Ser­i­ously) when they star­ted the Sig­ni­fic­ant Objects Pro­ject—an exper­i­ment designed to test wheth­er a series of stor­ies cre­ated about an object will increase its selling price.

After buy­ing 100 “unre­mark­able” objects with an aver­age price of just under $1.29 each, the two advert­ised them for sale along­side nar­rat­ives cre­ated by volun­teers. They then sold for a total of $3,612.51—more than 28 times their ori­gin­al price.

Dan Ari­ely of Pre­dict­ably Irra­tion­al dis­cusses the pro­ject and its find­ings:

The res­ults may seem sur­pris­ing, but this is actu­ally some­thing we see all the time. It’s the basic idea behind the endow­ment effect, the the­ory that once we own some­thing, its value increases in our eyes. […] But own­er­ship isn’t the only way to endow an object or ser­vice with mean­ing. You can also cre­ate value by invest­ing time and effort into some­thing (hence why we cher­ish those scrag­gly scarves we knit ourselves) or by know­ing that someone else has (gifts fall under this cat­egory).

And then there’s the power of stor­ies: spend a fant­ast­ic week­end some­where, and no mat­ter what you bring back […] you’ll value it immensely, simply because of its asso­ci­ations. This explains the find­ings of the Sig­ni­fic­ant Objects Pro­ject, and also how oth­er things like brand­ing works.

(Preventing) Manipulation Through Irrationality

Through the the­or­ies dis­cussed in Dan Ari­ely’s Pre­dict­ably Irra­tion­al (and largely based on the excerpts in Chris Yeh’s out­line of the book), two art­icles have emerged on dif­fer­ent sides of one top­ic: our irra­tion­al decision-mak­ing in terms of products and pur­chases.

One on how to take advant­age of our irra­tion­al­ity when mar­ket­ing products, and anoth­er on pre­vent­ing manip­u­la­tion by being aware of our own irra­tion­al­it­ies.

One point from each art­icle, per sec­tion:

Price Relativ­ity and the Encour­aging of False Com­par­is­ons

  • Offer a premi­um ver­sion of your product/service and make it easy to com­pare.
  • Real­ize that some premi­um options exist as decoys – that is, they are there only to make the less expens­ive options look more appeal­ing, because they’re easy to com­pare.

The Fal­lacy of Sup­ply and Demand and the Rein­force­ment of Anchor­ing

  • Set your­self against “premi­um” com­pet­it­ors in premi­um mar­kets. Pos­i­tion­ing is crit­ic­al to the per­cep­tion of value.
  • Scale your pur­chases to your needs, not your cir­cum­stances or wal­let size. Try to object­ively meas­ure the value of what you’re buy­ing.

The Zero Price Effect

  • Offer free stuff (espe­cially to those whose affections/actions you desire most), but make sure you get ROI from it.
  • Do not over­es­tim­ate the value of items you get for free. Res­ist this by view­ing free stuff scep­tic­ally rather than wel­com­ing it with open arms. What are the hid­den costs involved (restric­tion on future choices, time and effort expen­ded, etc.)?

The Exploit­a­tion of Social Norms

  • The mind­set of volun­teers vs. employ­ees (free vs. paid) is very dif­fer­ent – con­sider which beha­viour set you want before decid­ing on the type of labour to attract.
  • Con­sider care­fully before choos­ing to par­ti­cip­ate [for free].

The Influ­ence of Arous­al

  • Arouse your audi­ence and their beha­viour (espe­cially their decision-mak­ing) changes drastic­ally.
  • Be aware when you are being aroused (not just sexu­ally).

Design­ing for Pro­cras­tin­a­tion

  • Pro­cras­tin­a­tion is an extremely com­mon human beha­viour – plan for it in your busi­ness and take advant­age of it where it can help (tri­al offers that turn into paid ser­vices, for example).
  • Either favour fixed-rate, fixed-term plans – or become metic­u­lous about can­cel­ling unused recur­ring ser­vices, or ser­vices with auto­mat­ic price increases.

The Endow­ment Effect

  • ‘Free’ products are val­ued less than pur­chased products. It’s easi­er to get more money from your exist­ing cus­tom­ers than it is to attract new ones.
  • Be will­ing to walk away from–and nev­er rely on your intern­al value judg­ment of–already pur­chased goods/services. Ask an impar­tial third party for their object­ive advice.

Cap­it­al­isa­tion of our Aver­sion to Loss

  • Nar­row your cus­tom­ers’ choices and they’ll be more likely to com­mit.
  • If your choices are arti­fi­cially nar­rowed, don’t pass­ively get fun­nelled towards the goal you’re being herd­ing toward. Don’t pay extra for options, unless you can point to hard evid­ence that you need those options. Some options exist just to make you doubt your­self.

Engender Unreas­on­able Expect­a­tions

  • Take advant­age of expect­a­tions of value cre­ation. Pos­i­tion your brand so that users expect great things, and they’ll get them.
  • Let your own opin­ions guide you, not the opin­ions of oth­ers. Don’t let mar­ket­ing set your expect­a­tions. Rely on evid­ence and facts.

Lever­age Pri­cing Bias

  • High­er pri­cing means high­er expect­a­tions, but also more ful­fil­ment, even if the product isn’t actu­ally more ful­filling. The placebo effect is strong.
  • Price often has noth­ing to do with value. Don’t fall prey to the ‘money­moon’.

Psychology of Money

New Sci­ent­ist provides a com­pre­hens­ive sum­mary of stud­ies look­ing at the psy­cho­logy of money. There are some fas­cin­at­ing find­ings here, includ­ing a study show­ing that “simply think­ing about words asso­ci­ated with money seems to makes us more self-reli­ant and less inclined to help oth­ers [and] just hand­ling cash can take the sting out of social rejec­tion and even dimin­ish phys­ic­al pain”.

Our rela­tion­ship with money has many facets. Some people seem addicted to accu­mu­lat­ing it, while oth­ers can­’t help max­ing out their cred­it cards and find it impossible to save for a rainy day. As we come to under­stand more about money’s effect on us, it is emer­ging that some people’s brains can react to it as they would to a drug, while to oth­ers it is like a friend. Some stud­ies even sug­gest that the desire for money gets cross-wired with our appet­ite for food. And, of course, because hav­ing a pile of money means that you can buy more things, it is vir­tu­ally syn­onym­ous with status – so much so that los­ing it can lead to depres­sion and even sui­cide. In these cash-strapped times, per­haps an insight into the psy­cho­logy of money can improve the way we deal with it.

*The ori­gin­al art­icle has, since post­ing this, gone behind a pay­wall. Simo­leon Sense has some extens­ive excerpts.