Book 4: Predictably Irrational

This book was out of my expectations, meaning that it was explaining the behavior of people totally different than me. It was really strange. I felt very rational and I understood that it is not good for business being rational since most of the people in the world are irrational... that economics may be would make more sense if it were based on how most of the people actually behave. It made me read a lot about it, I saw that classical economics is the story of how humans are rational beings who calmly weigh up the pros and cons of each economic situation before making a logical decision. This was the way I looked at the world till now, but it seems that unfortunately classical economics, although interesting, turns out to have some serious problems… This book introduced me to the so called behavioral economics. Behavioral economists believe that people make all kinds of irrational decisions, and it tries to analyze them… “Behavioral economics dispenses with the conventional presumption that people are rational actors and views them as IRrational REactors.”

The chapter on pills reminded me of my mother who always wanted me to bring some analgesic (pain pills) from Turkey pretending to be better, more effective. On the other side, I take myself medicine costing just 50 leke, against disturbance during some long trips by car, and find them very effective, while some of my friends use some expensive ones… The results ??? SAME

The book tells about a study that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs. The effect declined when they were asked to stop and reflect on the relationship between price and quality. They were far less likely to assume that discounted ones were less effective.

I would like to share another experiment: Beer ordering. A group of 5 is offered a choice of 5 different beers.

· When people order out loud, and in sequence, they order more types of beer per table, opting for variety

· Those who made their choices out loud were not as happy with their selections than those who made their choices privately, except the first person that was just as happy as private choosers

· Why did this occur? "People are sometimes willing to sacrifice the pleasure they get from an experience in order to project a certain image to others...People, particularly those with a high need for uniqueness, may sacrifice personal utility in order to gain reputational utility."

o In Hong Kong, in a culture that values conformity rather than uniqueness, the similar but opposite effect occurred. People ordered the same order as the people ordering before them. They were still unhappy, but they made their choice to avoid uniqueness, rather than to seek it out…

I think that, mostly, it happens the same as in Hong Kong even in Albania… may be drinking the same drink makes you more friendly to the group…

Coming to the “FREE” or “ZERO” price effect, I believe that generally humans live with fear. As we have seen in “SWAY” the explanation of loss-aversion is typical case in this situation; when an item is free, there is NO VISIBLE possibility of LOSS. They focus on what they might lose, rather than what they might gain.

So I would suggest making the same experiments of Dan Ariely in your country with people you target for your business before applying some of these tactics …

To conclude, (in fact I would like to write much more over this book) I would like to finish with the statement that the book starts “Everything Is Relative”. I THINK THAT THIS BOOK IS REALLY WORTH READING at least it is a good first step to being aware (not being trapped) of business manipulations!!! :) :) :)