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Predictably Irrational Summary

Here’s the Predictably Irrational summary. Understand the hidden forces that shape our decisions. Also learn why our irrational behaviors are often predictable.

Overview

Predictably Irrational author Dan Ariely explains that our misguided behaviors are systematic and predictable. We always think that our decisions are rational. Well, think again.

The truth is that irrational behavior is just a part of human nature. What the author learned from 20 years of behavioral economics study he explains them in his bestselling book.

About the Author

Dan Ariely specializes in doing research in behavioral economics. He continuously does research on why we repeatedly and predictably make the wrong decisions.

He is a James B. Duke Professor of Psychology and Behavioral Economics at Duke University. He is also a founding member of the Center for Advanced Hindsight.

Main takeaways: Predictably Irrational Summary

Let’s discuss the key takeaways from his book:

  1. We don’t know what we want unless we see it in context.
  2. When something is free, we forget the downside.
  3. We should become aware of our vulnerabilities if we want to improve our behaviors.

We don’t know what we want unless we see it in context

We don’t know what we want unless we see it. We don’t know what we want to be doing until we see someone who is doing just what we think we want doing.

We don’t know what clothes we want unless we see it in the department store. We don’t know what kind of woman/guy we want unless we see him/her.

“If I had asked people what they wanted, they would have said faster horses.”  ― Henry Ford

We don’t know what we want until we see it. We need some reference. We need some anchor when we buy things and decide on other stuff. For example we can’t determine the true value and price of a certain item. We will use its previous price to figure that out. We get attached to that previous price. We use that as reference.

Everything is relative. We always use reference points when making decisions. Even if the reference points are irrational, we always want to get started somewhere. Anchoring can be used against us.

For example we see that an item costs 10,000 pesos. Then the company announces that it’s 50 percent off. We’ll feel that we’re getting a good deal. We got anchored to that 10,000 pesos. Any less than that is a good deal.

However, the real value of that product could just only be 1,000 pesos. But because of the anchor, you see the product as more valuable. You’re now willing to settle in to the 5,000 pesos.

Look at the digital products and courses out there. One is originally priced at 16,000 pesos. Then the owner gives a promo. It costs 8,000 pesos only. Customers will get the deal. But the digital product is actually worthless. That’s anchoring at work.

When something is free, we get the downside

This is common whenever we buy clothes and other items at the department store. We have something in mind about the brand we should buy. But then we see something that catches our attention.

It’s an unknown brand of jeans that offer a free average-looking belt. There’s a tendency we forget the brand we like. We will focus on that FREE stuff. We will switch brands just because of the word “FREE.”

But what happens when we get home? We get disappointed with what we bought. The quality of the jeans is poor. Just because of the FREE belt we settled for something less.

It also happens in everyday items. We see a shampoo bottle with free 5 sachets. We don’t like the brand. But because of the FREE, we switch brands. It also happens in other products such as toothpaste, dishwashing liquid, bath soap, alcohol, and many more.

We should become aware of our vulnerabilities if we want to improve our behaviors

The first step is awareness if we want to improve our behaviors. We should be aware of our vulnerabilities. Remember the example above. Now you know about our tendency when it comes to FREE stuff. Whenever you buy at the grocery or department store, you will try to stop yourself from doing an irrational behavior.

Aside from behaving differently when we see “free”, we also make irrational decisions when we’re emotional. For example in an ordinary situation, we prefer to eat wisely and healthy. But in the heat of the moment, we eat a lot and choose unhealthy foods. This especially happens when we’re hungry or excited.

Another tendency we have relates to the “endowment effect.” It means ownership changes our perspectives. For example you’re selling your car. The buyer estimates that it’s only 200,000 pesos (it’s also the market value). But in your mind it’s at least 500,000 pesos worth. The lesson is we value more what we own. We often overestimate the price of our possessions.

There’s also this IKEA effect. It works this way. The more work you put into something, the more ownership you feel for it. We need to assemble IKEA furniture items. We’ll do some work to complete the task.

We only partially did the work. We only assembled the whole thing. Yet we place unreasonably higher value on it because it’s our “creation.” This is another case where we place more value on what we own.

You’ve learned our tendencies to make irrational behaviors. Now you’re aware of those tendencies, you can counteract them. Aside from those, you’ll also learn the following from the Predictably Irrational book:

  • What is the effect of expectations
  • Why we are dishonest
  • Why expensive placebo pills work better
  • The surprising things about cheating
  • Why people are susceptible to irrelevant influences

My personal takeaways

I realized that I’m not as rational as I thought. I have tendencies that lead me to making irrational decisions. These tendencies are systematic and predictable.

Because they’re predictable, I can stop myself from making nonsense decisions. My awareness makes me stronger. I can also spot if marketers are trying to take advantage of me.

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