Predictably Irrational

Dan Ariely is not your average economist. A professor at the Massachusetts Institute of Technology (MIT), Ariely is a populariser of behavioral economics - a field attempting to explain people’s often irrational decision-making processes and wider social trends by reference to psychology experiments.

Several practitioners of this school of thinking - including Ariely - have rising profiles as social commentators in the US media.

With its particular focus on how individuals’ behavior can be influenced and manipulated by pricing policy and by the expectations created for a product or service, Predictably Irrational has a general relevance to marketers.

It is likely to of most interest to those involved in influence planning, pricing, comparative advertising campaigns and neuromarketing.

In this book Ariely details several case studies.

1. Comparative price advertising: An Economist promotion is analyzed to illustrate the common experience of consumers comparing price offers.

2. The power of free: Further to the free pricing experiments described above, Ariely makes a case for the implications of “free” offers in the real world.

3. The power of expectations: A student was invited to sample two beers and enjoy a free glass of the one they preferred. One was Budweiser and the other - labeled MIT Brew - was Budweiser laced with balsamic vinegar. He chose the second.

4. Overcoming consumer procrastination: To test theories of procrastination, Ariely gave students different deadlines for handing in their papers.

5. The collective influence on decision-making: Does the fact restaurant diners order out loud and in sequence affect the menu choices individuals make? If so, does this ritual enforce conformity or non-conformity? To investigate these questions, Ariely and colleagues conducted experiments in a bar.

Ariely uses these experiments to restate the book’s general point:

“According to the assumptions of standard economics, all human decisions are rational and informed, motivated by an accurate concept of the worth of all goods and services and the amount of happiness (utility) all decisions are likely to produce….

“Behavioural economists, on the other hand, believe that people are susceptible to irrelevant influences from their immediate environment, irrelevant emotions, shortsightedness, and other forms of irrationality…If we all make systematic mistakes in our decisions, then why not develop new strategies, tools and methods to help us make better decisions?”

Takeaway points:

• Consumers often act in ways which are irrational, systematic and predictable
• The values attached to products and services can be heavily distorted by the context in which things are valued, the presence of other individuals or the absence of directly comparable products
• FREE is not just another price, but a different and irrational motivator of consumer behavior
• Even small-scale empirical data can be used to overturn long-held assumptions
• Expectations, including those created by brand marketing, can persuade people to hold irrational views, and make irrational choices, often against their own self-interest.

Source: WARC