Why can people be irrational when it comes to making simple everyday decisions?
Well, it’s as simple as understanding the human psychology of the hidden forces that shape our decisions. Predictably Irrational by Dan Ariely is a fundamental book on why humans, customers and buyers decide to take action.
For instance, the concept of anchoring is an important tool to understand. If you purchased your first KIND Bar for $4.00 and your friend purchased the same KIND Bar for $0.50 at another store, when you and your friend purchase another KIND Bar for $2.50, the perspective between you vs your friend will be completely different. In the real world, anchoring comes from the manufacturers suggested retail prices (MSRP), advertised prices, promotions, product introductions, etc. – all of which are supply side variables, meaning pricing can be controlled to influence customer decisions.
What does this show? That our first decisions resonate over a long sequence of decisions. First impressions are incredibly important.
“….people are sometimes willing to sacrifice the pleasure they get from a particular consumption experience in order to project a certain image to others.” – Dan Ariely
On another note, the power of FREE! has tremendous benefits. Experiments were ran in France comparing the results of offering shipping for $1 Franc vs offering FREE! shipping. What happened was that shipping for $1 Franc was virtually ignored by purchasers. FREE! shipping on the other hand resulted in an enthusiastic response by customers.
Another interesting thing to note about FREE! is that it subtly changes decisions from monetary transactions to social transactions, which has an enormous impact on how others view us and our actions. The conclusion: no one is offended by a small gift, because even small gifts keep us in the social exchange world and away from market norms. Hundreds of years ago when individuals were mostly farmers and fending for themselves and their families, economies mostly ran on social transactions, resulting in bonds between traders, potentially connecting people and their resources.
These experiments show that cash will only take you so far – social norms are the forces that can make a difference in the long run. Our task as entrepreneurs is to figure out which of the two – social or market norms – will product the most desirable outcome.
The price of ownership is another interesting concept in the book. It is true that the idea of possessions causes us to view objects in different perspectives. We fall in love with what we already have. Another thing is that we focus on what we may lose, rather than what we may gain. A third quirk is that we assume other people will see the transaction from the same perspective as we do. All this mean is that ownership has its own pecularities. The more work you put into something, the more ownership you begin to feel for it and lose perception of its actual value in the marketplace.
Our brains work in fascinating ways. Although we may believe we are rational and logical decision makers as consumers in our everyday lives, the hidden reality is that we are emotional creatures that make seemingly questionable decisions. Understand these hidden forces and you will be aware of how decisions are shaped in our everyday lives.
Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions
Why do our headaches persist after we take a one-cent aspirin but disappear when we take a fifty-cent aspirin? Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup? When it comes to making decisions in our lives, we think we're making smart, rational choices....
Why do our headaches persist after we take a one-cent aspirin but disappear when we take a fifty-cent aspirin? Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?
When it comes to making decisions in our lives, we think we’re making smart, rational choices. But are we?
In this newly revised and expanded edition of the groundbreaking New York Times bestseller, Dan Ariely refutes the common assumption that we behave in fundamentally rational ways. From drinking coffee to losing weight, from buying a car to choosing a romantic partner, we consistently overpay, underestimate, and procrastinate. Yet these misguided behaviors are neither random nor senseless. They’re systematic and predictable—making us predictably irrational.
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Predictably Irrational is a wonderful book that gets into the mind of consumers and the reasons behind why they behave the way they do. If you are an entrepreneur who markets online, whether you are selling products or making websites, do yourself a favor and invest in learning the principles behind the psychology of economic behavior.