PDF Summary:Predictably Irrational, by Dan Ariely

Predictably Irrational takes a close look at the common pitfalls of human logic and explores the forces that are really driving your everyday actions. There's a big difference between how you should act and how you do act, and the difference is costing you everyday.

The book covers a range of psychological biases and how to counter them. You’ll learn why keeping your options open may actually diminish opportunities, why you’re more likely to be satisfied with your meal if you order first, and how your real estate agent might be making your decisions for you.

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It might not be obvious, but procrastination stems from this discrepancy between cool state decisions and aroused state decisions. Procrastination is simply the abandonment of rational plans in order to indulge in whatever will appease your aroused-state emotions. You set your goals with the best intentions—while in your rational cool state. When your emotions are triggered, you naturally act in ways that aren’t aligned with what you want to do.

Because you can’t predict how you’ll act in an aroused state, you have to work against procrastination by creating natural guidelines toward rational decisions. There are three helpful anti-procrastination tools.

1. Pre-commitments are promises or decisions your cool-state self makes that are aligned with the way you want to act. These commitments are made in such a way that when it comes time to act, you’re either held accountable to another person—such as a gym buddy—or the decision is made for you—as with an automatic savings plan.
2. Breaking the cycle of random rewards is helpful if you spend too much time on things that should be put off until later, like checking your phone or email. These activities randomly deliver rewards such as a text from a friend, or an important email. When rewards aren’t predictable, they take on a surprising, addictive sheen; reducing the possibility of random rewards removes this temptation. Try putting your phone on Do Not Disturb while you work, or set your emails to chime only when an urgent email comes in.
3. Creating positive associations can give you a type of “reward” for doing unpleasant tasks you usually put off, such as doing laundry or studying for exams. This helps fulfill your need for immediate gratification and prevents you from seeking it elsewhere. Try watching your favorite show every time you fold laundry to create an association between the two activities.

Irrationality Trigger #6: Ownership Bias

Ownership is an inherent part of our lives, but unfortunately, it drives us to make poor selling and buying decisions.

Irrational Selling Decisions

There are four particularities of human nature that drive poor selling decisions:

1. You naturally start to love things as soon as you own them.
2. You focus on potential losses more than potential gains.
3. You assume that the buyer shares your view of the item.
4. Your sense of ownership becomes stronger the more work you put into an item.

These particularities combine to create the endowment effect—that is, when you own something, you value it much more than other people do. This contributes to poor selling decisions in several ways.

• First, it’s harder to part with an object when you love it or are focused on its loss—driving you to price it exorbitantly, or not sell it at all.
• Second, when you price items you’ve put a lot of work into, you’re pricing based on your effort—not on the actual (lower) value of the item.
• Third, you’ll assume that your price is fair, because you know the item’s cost-worthy features. However, the buyer won’t see how the item is better than another, similar, lower-priced item.

It’s very difficult to think objectively about your possessions, but by recognizing how ownership colors your perspective, you can be more receptive to the advice of neutral parties—such as a friend or real estate agent. Their clearer ideas of the value of your possessions can help guide your decision-making.

Irrational Buying Decisions

Poor buying decisions stem from the fifth particularity of our nature—you can feel ownership of an object before you even own it. This is called virtual ownership, a powerful selling tool that usually comes in the form of advertisements and trial periods.

• Advertisements feed you a visual story where you can imagine yourself owning a product—which causes you to naturally fall in love with it.
• Trial periods, on the other hand, let you experience what it’s like to own a product. Because trials replicate the feeling of ownership, you’ll naturally start to feel that the product is yours and become averse to losing it.

In both cases, your lack of real-life ownership starts to feel like a loss—driving you to buy and therefore actually own, the product.

You can avoid the trap of virtual ownership in several ways. First, when you see an advertisement, think about how the product will really show up in your life. Second, avoid trial periods if you don’t need the product—once you “own” the product, it starts to feel like a need.

Irrationality Trigger #7: Options

It’s human nature to keep as many options open as possible. However, having too many options distracts you from your goals and causes you to miss out on disappearing opportunities. There are three ways to stop wasting time on insignificant options and commit to decisions:

1) Narrow your options. Recognize when options realistically have very little opportunity or potential and eliminate them from your thinking. Some of these options are insignificant and easy to dismiss—such as eliminating little-enjoyed activities from your children’s schedules. Other times, these options will be significant and difficult to choose between—such as choosing your major in college. In these cases, you’ll have to put a great deal of thought and commitment into deciding which option is the best choice for you.

2) Consider your losses. Even with only two options before you, you’ll spend time trying to decide which option is the “correct” choice. In these cases, focus on what you lose by not making a choice. For example, not committing to a major means you miss out on interesting electives, or staying in a fizzling relationship prevents you from creating happy memories with a new partner. While keeping many options open holds many opportunities, actually committing to one option is what grants you opportunity.

3) Recognize disappearing options. Examine options in the context of the long term—you’ll discover which options have a sense of urgency, because they won’t be available forever. These opportunities demand that you invest time and energy in them now. These options can be incredibly significant—such as choosing to spend more time with your children than on work—and other times, important in a small way—such as choosing to quit a club in order to spend more time enjoying your garden. This exercise eliminates options that don’t serve your best interests in the long term or can be revisited at a later time.

Irrationality Trigger #8: Expectations

Your perception of events is heavily colored by your expectations and knowledge going into an experience. This doesn’t just influence your belief of what happened—your expectations can physically modify your sensory perceptions.

• For example, in blind tests between Pepsi and Coke, most people prefer Pepsi. However, when people are told what brands they’re drinking, they overwhelmingly prefer Coke—their ideas of the brand physically modify the taste they experience.

Expectations—conscious and subconscious—exist in all facets of your life, and it’s important to try to keep them as unbiased as possible. While it’s difficult to “unlearn” the information that colors your experience of an event, you can find ways to make decisions and sort through problems as rationally as possible.

• You might present a neutral account of what happened to prevent people from arguing “their” side and highlight factual discrepancies. For example, instead of arguing, “You stole money from our savings for a ridiculous purchase, and you didn’t even ask me!” you could try, “Money was taken from our joint savings account for a large purchase that wasn’t agreed upon.”
• You could ask a neutral third party to help with arguments—such as a couples therapist.

The placebo effect is one well-known way that our expectations can drastically alter the outcome of an experience. The placebo effect is more nuanced than the simple belief that you are receiving effective medicine—experiments show that when medications and products come at a higher price, the placebo effect is stronger because we naturally associate quality and high prices. This means that companies and providers can not only influence how well we think products, procedures, or medications are working, but how well they actually do work—just by bumping up the price.

It’s a natural, unconscious reaction to think that low price is equivalent to low quality—putting in a moment of conscious thought goes a long way toward interrupting this irrational reaction. This moment of thought might look like reading the active ingredients in brand name and generic brand medications to objectively see that they’re the same medicine or reading user reviews when comparing two similar, but differently priced, products.

Irrationality Trigger #9: Trickle-Down Distrust

The rational way to consume resources is to commit to ensuring that resources aren’t exploited or depleted, so everyone can enjoy the benefits. However, there are often people and organizations that act in their short-term self-interest and destroy the resources for everyone in the long term. As a result, we naturally feel that we can’t trust organizations with public resources—they’ll exploit them, sooner or later. This general distrust of organizations has far-reaching implications.

First, we irrationally apply distrust to everyone instead of just the person or organization in question. For example, people are so used to seeing organizations use the word “free” as a sly marketing half-truth that they automatically think that any “free” offer must be a trick—so when a peer offers them something for free, they automatically distrust the intentions behind it.

Second, we’re more likely to engage in untrustworthy behaviors ourselves when we feel that others are not trustworthy. These dishonest behaviors may be beneficial in the short term, but they’re irrational because they only serve to continue the cycle of distrust. Those who do act with honesty are punished for doing so—men who don’t lie about their height are overlooked, or a candidate with an unembellished résumé doesn’t land an interview. In the future, they will also resort to untrustworthy behavior, because it’s the only way to be competitive.

If we worked toward building trust instead of spending energy on “winning” or avoiding being swindled, we’d be able to reap more rewards from our exchanges and transactions. The only way out of the ongoing cycle of distrust and untrustworthy behaviors is to become more trusting. There are two ways that you can accomplish this: consciously stop contributing to interpersonal distrust and engage with trustworthy organizations.

1) Consciously stop contributing to interpersonal distrust. Trust is an easily exploited resource—make sure that the way you communicate isn’t contradictory or doesn’t rely on confusing or hidden subtext. For example, make sure you always say what you mean. If you tell an employee that there’s “no rush” on a project, don’t become upset when they don’t start working on it right away.

2) Engage with trustworthy organizations. Working on interpersonal relationships helps establish small pockets of trust, but recall that most general distrust trickles down from distrust of organizations that exploit resources. To repair your general sense of distrust, engage with trustworthy companies that don’t demonstrate self-serving behaviors. Ask yourself: Does this company engage in initiatives that are in the interest of the common good, such as reducing carbon emissions? Is this company’s marketing misleading or dishonest?

Irrationality Trigger #10: Rationalized Dishonesty

We irrefutably think of ourselves as good and honest people, even though everyone is guilty of dishonest actions—like taking a roommate’s leftovers or swiping a few pens from work. Usually, your decisions about whether or not to act honestly depend on your conscience, which is essentially the internalization of social values. However, the influence of your conscience is only so strong—at times, the financial benefit of acting dishonestly can overpower your moral compass.

We put laws and oaths in place to prevent dishonesty, but the promise of financial benefit is strong. People easily find loopholes that allow dishonest dealings. For example, pharmaceutical companies can’t bribe doctors with money, but they can send them on nice vacations.

The key to being honest is recognizing the irrational mental gymnastics we go through in order to think of ourselves as honest while acting dishonestly. The type of dishonesty perpetrated by otherwise honest people is at least one degree separated from cash, because the absence of money makes it much easier for you to rationalize your actions. Rationalizations leave our consciences untriggered—we can believe that we’re honest people, despite the fact that we regularly engage in dishonest actions.

• For example, if you write off lunch with a friend as a business expense, you might think, “She works in a similar field so this was a valuable networking opportunity.”

The first step to becoming more honest is recognizing the ways you’ve rationalized dishonest behaviors. When you know your patterns of rationalization, it’s easier to spot them when they come up and consciously work against them. The second step is interrupting these thought processes by reframing your thinking—think about the cash value of your dishonesty. For example, if you’re about to write off that lunch as a business expense, ask yourself, “Would I take $100 directly from my company?”

Irrationality Trigger #11: Making Choices Aloud

When we make decisions aloud, we tend to be less satisfied with the outcome. This is because we tend to make very different choices in front of others than we would privately. And, when we make decisions aloud in a group, everyone in the group makes much more varied choices than if they were choosing privately. We do this because we have a need to project a certain “individual” image of ourselves to others. On the other hand, those who make decisions privately are more often satisfied with their choices—their decisions come from their preferences, not their need to prove something.

Be aware of this inherent need to make individual choices. While it may only result in a small unsatisfying decision—like ordering a drink you didn’t really want—it has the power to drive a large, life-altering decision—such as choosing a university you don’t love because a rival already chose your first pick.

It’s helpful to think ahead about your decisions, so you’re not tempted to change them in front of others.

• First, know what you want. If you wait to hear the decisions of others before making a choice, you’ll be easily influenced.
• Second, try to announce your decision first. Announcing your choice first puts a “claim” on the decision, and protects your individuality, even if someone else makes the same decision as you.

What Human Error Can Teach Us

Many of our practices are based largely on information about how people should act, but it’s clear that we should be more focused on learning how people do act. By doing so, we can find ways—irrational though they may be—to improve our communities and social relationships, make better choices for ourselves, and act with honesty.

(Shortform note: Read our summary of Thinking, Fast and Slow to learn more about how we make decisions, and why those decisions are often irrational)