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.