Friday, October 01, 2010

Takeaways from Predictably Irrational, Part III

I recently finished Dan Ariely's Predictably Irrational. You can read Dan's current writing at his blog. Here is part one and part two in a multi-part series of my takeaways from the book. Here is the next part, focusing mostly on where irrationality comes from:

This book is one sentence is an economist looking through the lens of psychology.

When men are sexually aroused there are about twice as likely to admit to interest in what they would deem as morally reprehensible. My guess is there is a similar correlation between other intense emotions like anger, jealousy, sadness, excitement, etc.

These moments of irrationality seem to be evidence to support Biblical truths about fleeing from sin. Avoiding temptation is easier than overcoming it.

There seem to be trade offs between reason and emotion. Like Jekyll and Hyde, each side has it's own strengths. In 2010 America, the calm collected Dr. Jekyll is preferred.

Often there are ways to predict how we might act when emotion arises. Another example from the book is for women deciding whether to pre-plan for an epidural during childbirth. She should attempt putting her hand in freezing water for 2 minutes. Amidst the pain she can predict what she'll want when the pain of birthing begins.

There are also steps we can take to put ourselves a step or two removed from making emotionally driven bad decisions. One unique example from the book is putting your credit card in the freezer in a cup of frozen water.

Predict their savings rates: USA, Europe, Japan, China. Approximate answers (in order): 0%, 20%, 25%, 50%.

The endowment effect is a well documented theory that people value something more after they own it (related to the aforementioned loss aversion). This can lead to a couple different problems: 1) fall in love with what we have to the detriment of what we could have, 2) expect others to value it just as much. So should we  buy less things? Sell less things?

Advertisements play off this owning effect through "virtual ownership".

Another problem associated with this is people don't like giving up potential options. Like the story of Buridan's ass, not making a choice is often the worst choice. Here's an article on the main experimental example in the book. Here's my earlier post on too much choice.

This helps describe the problems of constant career changers, over-activities kids, and people with too many hobbies. In fact, it challenged me, someone who spends a significant amount of time blogging and improvising.

This endowing effect also effects what we believe? It's why first impressions are so important. If you have something bad to reveal, pre-load it with good news. Here's an example: beautiful catering trays with fancy food labels.

Another real world example is prejudice and stereotypes. Surprisingly, it impacts prejudice on those being stereotyped. For example Asians are viewed as good at math, women generally said to be worse at math. In an experiment Asian women were asked to take a math test. Half were initially asked questions about being a woman and they did worse on the test. The other half were asked questions about being Asian and they did better on the test.

A final example from the real world is the placebo effect. I've discussed how perhaps education and ignorance can be placebos, but I'd never considered the reverse placebo effect. If something is perceived as low quality (often measured in price), it may not have it's highest possible effect. Perhaps this may be one of the trade offs in our attempt to decrease health care costs.

I'm unsure how this should impact the pricing of an improv show. Does an expensive show signal quality and therefore increase the average enjoyment of the show? Going back to the first takeaways on the word free, which would get better ratings from an audience, a $12 show or a free show?

This unconscious effect of placebos can be counteracted by the acknowledgement of them.

A related Einstein quote: “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.”

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