Takeaways from "Predictably irrational" by Dan Ariely

Published on April 14, 2022

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Main take-away: we’re all biased, and we systematically make decisions based on irrelevant information.

  1. Everything is relative - we can only tell what something is worth compared to something else. We always estimate worth of something in the context of similar things, and people marketing things to us can take advantage of that. If, out of two options, we as customers tend to pick a cheaper one, then the seller can make an expensive option seem more attractive by adding a slightly better but substantially more expensive option next to it.
  2. The cost of zero cost - we are irrationally drawn to “free” stuff. We prefer a purchase of $68 with free shipping over $62 purchase with $6 shipping. We’re likely to purchase more things, even if we don’t really need them, only to get a free delivery. We can stand in line for 2 hours to get a free sample of a $3 ice cream. Without realizing it, we quite often pay more for stuff when we get it for “free”. It could be related to loss aversion bias - an irrational tendency to prevent losses at all cost.
  3. The cost of social norms - we either do things for its real price, or for free, out of courtesy or charity. When you offer some small payment, it doesn’t go well - even though small payment is more than paying nothing, it fits with neither market norms nor social norms. Taking small amount of money is neither volunteering or doing a good deed (social norm), nor a proper business transaction (market norm).
  4. Fallacy of supply and demand - people buy overpriced coffee instead of making it at home almost for free, and they are happy to pay higher price because prices are based on experience, not on a quality of coffee.
  5. The problem of procrastination and self control - if there are no deadlines, you will fail. Even if deadlines are artificial or self-imposed, they give you motivation to go through with the things you set out to do. Having punishment as motivation also works - for example, getting refundable money for a visit to make sure you come.
  6. High price of ownership - people appreciate what they have more than they appreciate what they would like to have, because they’re afraid of loss. When you get a product with a free trial, people count on you not wanting to give it up after you already “own” it, even if it’s not right for you. We value things more highly once we own them
  7. Indecision is keeping you away from your goal - pursuing too many options means pursuing none.

Konstantin Lebedev © 2022