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.
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.
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‘.
A significant majority of Americans, polls repeatedly tell us, list terrorism as one of their greatest fears. Like most of our media-inspired interests and worries, however, this one has little basis in reality. [â€¦]
As the data clearly shows, the things that genuinely threaten us are the ones we are most likely to ignore or simply accept. (We’re statistically far more likely to be killed by a lightning strike than by an action of Al Qaeda, for example.) The ones that we’re scared witless of â€“ and spend trillions of increasingly scarce dollars to avert in our boundless paranoia â€“ are less likely to harm us than a bag of peanuts. (Deaths in America due to peanut allergies average 50 â€“ 100 per year. Deaths of Americans due to terrorist activities [â€¦] have averaged less than 15 per year since 2002.)
I find that predicting the course of our lives is like predicting the weather. You might be able to predict your future in the short term, but the longer you look ahead, the less likely you are to be correct.
I don’t think complex situations like [the current financial crisis] can be predicted. There are too many uncontrollable or unmeasurable factors. Afterwards, of course, it will appear that some people had gotten it just right: since there are many people making many predictions, no doubt some of them will get it right, if only by chance. But that doesn’t mean that, if not for some unforeseen random turn, things wouldn’t have gone the other way.Â [â€¦]
As someone who has taken risks in life I find it a comfort to know that even a coin weighted toward failure will sometimes land on success. Or, as I.B.M. pioneer Thomas Watson said, “If you want to succeed, double your failure rate.”
To answer this, Richard WisemanÂ offers this common thoughtÂ experiment fromÂ Bruce Hoodâ€™s new book,Â Supersense:
Imagine that you only have two objects in your house:
1) A Â£10 watch that was given to you by your partner and therefore has sentimental value.
2) Another watch thatâ€™s worth Â£1000 but has no sentimental value.
Your house catches fire, and you only have time to save one watch. [â€¦] Which watch you would save?
If you think that the Â£10 is somehow imbued with the essence of your partner then you are being superstitious. Of course, you might argue that it simply reminds you of the good times the two of you have had together. Fair enough, but how would you feel if I replaced it with a watch that wasÂ absolutelyÂ identical (same scratches, markings, etc)? This replacement watch would have exactly the same memory-inducing properties, but most people reject the idea, saying they want THEIR watch. Again, this is irrational.
Of course, this assumes that sentimentality (while irrational) == superstition.
Shouldn’t you get more rationality credit if you spend more time studying common biases, statistical techniques, and the like?Â Well this would be good evidence of your rationalityÂ ifÂ you were in fact prettyÂ rational about your rationality, i.e., if you knew that when you read or discussed such issues your mind would then systematically, broadly, and reasonably incorporate those insights into you reasoning processes.
But what if your mind is far from rational?Â What if your mind is likely to just go through the motions of studying rationality to allow itself to smugly believe it is more accurate, or to bond you more closely to your social allies?