Notes: Predictably Irrational Dan Ariely (Chapter 1)

Reading notes as I work through Predictably Irrational by Dan Ariely, a revealing book discussing the hidden forces that shape our decisions.

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The decoy option

Chapter 1 hits on a key insight:

Most people dont know what they want unless they see it in a context.

It mentions how The Economist magazines website provided three subscription options:

  • Internet ($59)
  • Print ($125)
  • Print + Internet ($125)

In a study, heres how 100 MIT students signed up given these 3 options:

  • Internet (16 signups)
  • Print (0 signups)
  • Print + Internet (84 signups)

Now lets remove the second option because why would you pay $125 for just Print when you could get both Print + Internet for the same price?

These are the suprising results:

  • Internet (68 signups)
  • Print + Internet (32 signups)

Even though no one before signed up for the clearly inferior Print only option (as you would expect rational agents to behave), the mere presence of it was driving individuals to favor the Print + Internet option over the Internet only option.

High priced entrees on a restaurant menu work in a similar way. They boost overall revenue for the restaurant not because people buy the highest priced entrees, but because their mere presence nudges folks to buy the second most expensive dish instead.

We like to compare things that are easily comparable.

A few examples:

House shopping: Imagine a realtor shows you three houses: a contemporary, a colonial, and a worse colonial. By the presence of the worse colonial, you are more likely to choose the other colonial over the contemporary!

Vacation travel: If I asked you to choose between an all-expense paid trip to Paris or Rome, it would require some thinking. However, consider these options instead:

  • Paris
  • Rome
  • Rome without a free breakfast in the morning

By the presence of the clearly inferior Rome without a free breakfast option, people are more likely to choose Rome over Paris.

Going out with friends: If youre with a friend who looks similar to you but is slightly less attractive, youll by comparison look more attractive and desirable than you would otherwise.


Its also interesting how well drive 15 minutes to save $7 on a $25 pen, but we wouldnt do the same for a $445 suit.

In both cases, we are spending the 15 minutes driving to save $7, but in one case we are way more likely to do it.

Rational?

Comparisons can also make us unhappy & discontent.

A few amusing quotes:

H. L. Mencken, 20th century journalist, satirist, social critic, cynic, and freethinker

“A mans satisfaction with his salary depends on whether he makes more than his wifes sisters husband.”

James Hong, co-founder of Hotornot.com as quoted in the New York Times

“I don’t want to live the life of a Boxster, because when you get a Boxster you wish you had a 911,” he said, referring to a much more expensive Porsche. “And you know what people who have 911s wish they had? They wish they had a Ferrari.”