Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions Paperback – April 27, 2010

Among the various books available that cover the topic of human behavior, Predictably Irrational is among the top ten (interested readers should also read Sway by Rom Brafman). It's not quite an economics book (for a much better analysis of the many failings of neoclassical economics, read Debunking Economics by Keen) and it's not quite a behavioral psychology book (read Sway) so it falls somewhere in the middle - and therein lies its main weakness.

There are some very interesting anecdotes (for example, do you know why we think black pearls are valuable when originally no one wanted to buy them at any price?) and these are where most of the book's value lies.

The principal weakness comes from Ariely's conclusions based on the work he's carried out. He acknowledges that we humans are "irrational" compared to the straw man of the "rational optimizer" beloved of neoclassical economic theory, but while some of his examples are interesting he fails to see the entire picture. Thus whereas Keen shows that the neoclassical model is computationally impossible, Ariely merely shows that we have different decision-making processes in two distinct contexts: interpersonal and financial. This is valid, but Ariely then goes on to show that he hasn't really explored the interpersonal context with any degree of rigor.

A couple of examples will illustrate what I mean. In the first example Ariely talks about how companies strive to create a "social exchange" in the workplace because people generally work harder and more diligently in social exchange settings than in compensation-based settings. We can think of how we might keep on struggling to get a friend's piano up the stairs of a narrow apartment building long after we'd have given up if we were simply being paid $10 per hour by a stranger to perform the same task. So Ariely notes that companies try to exploit our social side in order to get more work out of us (he doesn't look at the ethics of this attempt, or even at its many infeasibilities). Then he suggests that in order to reinforce the social dynamic and avoid corrupting it with the financial dynamic (because it's not possible to combine the two) companies should not give bonuses but instead should send employees off on a paid-for vacation. The problem, of course, is that most employees don't want to be placed in a parent-child relationship. Most employees think of themselves as independent adults. Saying "here's a vacation we've arranged for you" violates an employee's independence. Worse still it assumes the employee's plans for their free time are irrelevant (the cost of leaving one's home, family, and friends for the duration of the enforced vacation are apparently zero where the company is concerned...). Obviously this recommendation would be disastrous under real-world conditions and one wonders how Ariely failed to think through his proposal.

A second example of this failure to think things through comes with Ariely's analysis of cap-and-trade. Rightly he points out that when you set a price on something (in this case pollution) then people may elect to pay more in order to get more. Just as we might only take a single candy from a tray being passed around the group but might buy ten if the candies are being sold, so too might companies pollute less if pollution were a "social good" rather than a priced good. With cap-and-trade companies might simply elect to pay more in order to feel free to pollute more. So Ariely proposes making pollution a "social good." But again a moment's thought shows this to be absurd. Not only do we have far too many examples of companies being quite happy to pollute when it's a cost-free exercise, Ariely's own book shows that executives will ignore social factors when their focus in on financial rewards. As executives are almost exclusively motivated by fat financial rewards, the notion that they would take social norms into account when deciding whether or not (or how much) to pollute is like saying that investment bankers would put the needs of their clients and the financial system in general ahead of their own desire for the $100 million bonus they get from pushing CDOs onto unsuspecting dupes.

So in the end the book is worth reading for its anecdotal value but not for Ariely's own conclusions or policy suggestions. He's not-quite an economist and not-quite a behavioral psychologist and ultimately that means he's not-quite useful as a guide to policy formulation on either the micro or the macro scales.

My review is based on my purchase of the CD. As much as I wanted to give 5 stars for the content and insights, the reader was so subpar that I could not.

Advertisers have known all along that economic decisions are often heavily based on social, cognitive and emotional factors. We can know too. Author Dan Ariely gave incredible insights into ways that people commonly make irrational decisions. Sure they were based on college experiments, but we learn a lot about ourselves from the results and Ariely's interpretations.

From knowledge gained studying irrational decision-making, I wonder to what extent we can rationalize behavior. It seems the complexity of decision-making might be increasing, and the irrational biases are apparently hardwired. For example, even though we know based on Ariely's research that we put energy into being penny wise and pound foolish regarding certain purchases, it seems likely that smart people will continue to do so.

The solutions posed in the book are really separate from the value of the knowledge gained. Obviously, government has a legitimate role in consumer protection. Consumers, working constantly and with no time to research the fine print of every type of deal, should be protected to some extent. Even so, there is no way government can protect citizens from every pitfall. It makes me wonder if a type of training could be devised to help me, and all of us, override most irrational impacts on decision-making.

This remains one of the most important book series I've ever read (and listened to). It's very accessible, but insightful and well researched. It's still my favorite of all the Behavioral Economics books. But Thaler is great too. In general, this subject matter is immensely helpful whatever you do for a living. Every type of strategy relies on your ability to predict human behavior, so understanding behavior and decision making is obviously essential.

This is a fantastic book that underscores peoples' propensity to act irrationally under certain conditions. This irrationality generates a lot of money for the sales and marketing departments of many companies. Read this book and you'll be surprised at how many of us can be so easily caught off-guard.

Dan Ariely has a very simple, easy-to-understand writing style that minimizes the psychology and economics jargon and leaves readers with the actual concepts in practical terms. It's an eye-opening book that virtually every consumer interested in pop psychology or behavioral economics should read.

This is such a great read! This book actually makes you question why we do the things we do. Dan Ariely had a burn accident when he was younger which led him to wonder why people do the things they do. This is what made him study human behavior. People don't know what they want or how much to pay for something, which means they can be easily influenced. We need things to compare to to help us make our decisions. Ariely talks about the concept of "free" and our obsession with it. People want free things even if they don't need it or even if it's bad for them. Why are people obsessed with the concept of "buy one, get one free?" Ariely also talks about why we procrastinate and why we don't have self-control due to immediate and delayed self gratification. This is a very enjoyable and easy book to read, and it's full of experiments and personal anecdotes. I highly recommend this book for anyone that wonders about rationality and why we do the things we do.