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Predictably Irrational Essay

1621 words - 7 pages

Matthew Ellis
Marketing Management
Prof Pashkevich
December 4, 2013

In the book predictably irrational, author Dan Ariely explains and demonstrates through witty experiments the fact that although we may think we are always making rational, well thought out decisions, there are actually hidden factors that cloud our ability to make the right decisions. He goes on to discuss how our emotions, social norms, and other hidden forces can change our rational intentions into extremely irrational Behaviors. The interesting part is that these irrational behaviors seem like the correct thing to do at the time and we use these past experiences to make future decisions, and therefore if we are ...view middle of the document...

The book starts out with a discussion of the way that humans use comparisons to make decisions. Humans perceive everything as relative even when it shouldn't be perceived in that way. People compare things that are easily comparable and we often don't realize that the introduction of irrelevant options can affect our decisions. It may appear that the presence of irrelevant options would not influence your decisions but that would be far from the truth. One of the scenarios that Ariely uses to demonstrate this decoy effect Involves a choice between three options. The first two options, a and b, are similarly attractive but distinct from each other. the third option(a-)is similar to a but it's clearly inferior. Given that the third option is easily comparable to a, most people will choose a because they can compare it to a- and see that it is better. This realization leads to irrational behavior because even though a and b are similarly attractive and it is very hard to choose between the two, the presence of the third option makes it an easy choice. Thinking rationally, the addition of the third option should not make one of the equal choices seem better than the other.

The next effect described is called the anchoring effect. This means that people anchor a particular price range of a selected product based on the first price that they encounter, even if that price is irrational and isn't really equal to the products value. Once a price is anchored to a product, people base future purchases on that anchor and compare the prices to the anchor they remember. Ariely conducted an experiment involving the last two digits of a group of students' social security numbers and their willingness to pay a specific price for a bottle of wine. The students who had numbers ranging from 80-99 bid the highest for the bottle. The numbers acted as the anchor in this scenario and even though it seems irrational, it had a great effect on the students. The fact that they saw high numbers on their page made it seem like a higher price for the wine was accurate. This shows how factors that go unnoticed have large effects on how we behave. We must train ourselves to not just repeat actions because we have experienced them before, but instead to question these actions each time.

The next effect discussed is called the zero cost effect. The Possibility of getting something for free can drive people to make extremely irrational decisions. In fact Ariely describes zero cost as a source of irrational excitement. The experiment used to convey this point utilizes Lindt truffles and Hershey kisses. Initially, the truffle was 15 cents and the kiss was 1 cent and people overwhelmingly chose the truffle because it was way better quality. The circumstances were changed by reducing the price of each option by 1 cent. The equal change in price should result in the same decision of choosing the truffle. However, now that the kiss was free, people chose it overwhelmingly...

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