Interesting Findings from Predictably Irrational by Dan Ariely

In his book Predictably Irrational, Dan Ariely talked about a lot of interesting research he have done that suggest new ways of interpreting how people behave. His insight about how our behaviors are often results of calculated manipulation is very eye opening. It can be viewed a book for marketer to learn how to persuade people to buy their products or can also be viewed as a book for everyone to learn how to be more aware of all the surrounding manipulation. I have jogged down some of the most interesting findings that are most impactful.

Many of Our Behaviors are Manipulated

If you have one hundred percent control of your mind without a tiny little gap for manipulation, how would you explain the things that you have bought while you end up finding useless. Is it because of an advertisement you see? Or a friend using the products? Or the sale people connect with you with the right words? Manipulated behaviors don't just apply to buying things only, it can also apply to the company you want to work in and all sorts of different stuff.

By Recognizing our Irrational Patterns, We can make Better Decisions

If we understand that our decisions are often irrational or manipulated, we have a better chance to be more objective and catch ourselves making bad and irrational decisions.

We Often Have No Idea How Much Things are Worth. We Estimate by Comparing Them with Other Things

We often think that we know how much something is worth. But think about it, we basically compare that thing we are buying to some other similar things. If that thing we are looking at is cheaper than a similar thing, we think it's worth the price. A very interesting finding from a restaurant shows that if they put something very expensive in the menu, very few people will buy that item but they will often buy the second most expensive item as they think its worth the price when comparing to the most expensive item.

We Like to Compare Things that are Easily Comparable

We also have a tendency to compare only things that are easily comparable. Going back to the restaurant example just mentioned, if you want to use a very expensive item to suggest to your customers that your dessert item is worth buying, that most expensive item should also be a dessert item in order for the users to easily compare them.

Price is NOT really the Result of Supply and Demand

In his book, Ariely suggested that price is not, at least is not completely, the result of supply and demand as the classic and popular economic theory has suggested. This is kind of ground breaking as the price of a product being the result of supply and demand is the fundamental economic belief that is printed on every economic textbook. As illustrated in the above mentioned ideas, the price is more arbitrary than what we may think and it can be manipulated.

Our Arbitrary First Impressions of Prices of Things Anchors the Way We Value Them in the Future

The price that we believe an apple pie is worth is very likely influenced by the first time we buy an apple pie or the first time we see it on a menu. Once we have that price in our mind, also known as the anchor, it can easily affect how we value an apple pie for months or even years after the anchor is seeded.

The Power of Free is Very Powerful

In the book, Ariely talked about an experiment that illustrates the difference between two cents and one cent is very small, while the difference between one cent and zero is huge when it comes to directing people to perform a certain behavior. Using the power of free properly can help a marketer to attract customers to buy. Amazon's free shipping is a great example of how the power of free can help boost revenue significantly. Free is a category of its own. Very cheap does not equal to free.

In a Given Situation, We Either Behave Under Social Norms or Market Norms, Not Both

To make things simple, market norms dominate where money is the main purpose, and social norms dominate where money isn't the main purpose of isn't involved at all. For example, when we work, if working for money is the main reason, we are in market norms. If working is mainly for creating value with a team of people, we are in social norms.

There are Things that We are Happy to Do Without Getting Paid. We May Not Feel Happy Doing Them If We are Paid

If we have to cook a meal for our family, we would usually do a good job, under the social norms. However, if we are paid to cook, we would switch to the market norms, where we would use cost and benefit to calculate our effort, usually leading to a worse result.

A Small Gift is Usually Better Than Small Cash

If your friends help you move your home and you want to thank them, it is obvious that you would want to thank them by treating them a nice $20 meal instead of giving them a $20 bill. A small gift like that can keep you and your friends' relationship under the social norms.

When Market Norms Takes Over a Social-Norm Environment, It is Difficult to Go Back

Using the previous example, if your friends help you move your home and you end up paying them a $20 bill instead of treating them a $20 dinner. The relationship will switch from social norms to market norms. The friendship will obviously no longer be as close, and it can be very difficult or can take a very long time to recover.

A Firm "No" Answer Can Become a "Yes" When You are Under Excitement, or Not Calm

There are times that when we decide to say no to something when we are in a very calm mood. For example, let's say that you want to lose some weight and decide not to eat any dessert in the upcoming weeks. So you decide to say no to dessert no matter what. Now, imagine if you are going out for dinner with your friends and all your friends are ordering delicious and beautiful desserts. How likely is your "one hundred percent no" become a "yes"? The excitement doesn't even have to be directly related to the thing you say yes to. For example, think about how much more likely you are going to say yes to your partner's request when you are having a great dinner, under a great mood.

We are Naturally Bad at Self Discipline. External Force Often Make Us Perform Better

With his research, Ariely concluded that we are simply naturally bad at self discipline. We need external force like salary and deadlines set by others to actually perform better. That may be one of the reasons why a good employee is rarely a good entrepreneur.

We Overvalue What We Have

This is a finding from one of Ariely's interesting research he talked about in the book. It is important to know that it is human nature that we overvalue what we have. That's why it is very easy for us to overestimate our skills, assets, or values to an organization.

Options Can Easily Distract Us from Our Main Purpose

When the purpose is clear or even simple, it is logical to think that we can focus on what our mission or purpose is no matter what distractions are present. The finding from Ariely's research tells us that it is not the case. We do still get distracted even if our goals are clear and the distraction seems irrelevant.

We Think What We Expected

This is a very interesting finding that is best illustrated with an example. Before the experiment, most people say that Coca Cola taste better than Pepsi. Then The experiment is roughly set up like this: there are two glasses of coke, with one glass being Coca Cola but labeled as Pepsi while the other glass being Pepsi but labeled as Coca Cola. The participants have to taste both glasses and decide which one tastes better. Very interestingly, most people say that Pepsi taste better, while falsely believing that it is Coca Cola.

Price Can Have a Powerful Impact (Power of Price)

This is probably the most interesting finding mentioned in the book. The finding is that the price of something can actually alter the actual result. For example, if the same pill are sold at different prices, the patience that buy the pill at the higher price usually yield better results. It is amazing to know that the price can have such a significant psychological and even physical effect to us.

We are More Likely to Cheat When We are a Step Removed from Money

This finding is most easily illustrated with an example. In a game, if the prize of winning is a $10 bill, not that many people will cheat. If the prize of winning the same game now becomes a $10 supermarket couple, there are more people that will cheat. This is such an interesting book. It is definitely more than a marketing book, but if you want to learn some marketing tricks from the book like me, I think the findings about the power of free and the power of price are very interesting. The social norms Vs market norms concept may also be useful when it comes to leading a group of people. And his suggestion about how the price of a product is not the result of supply and demand, but rather can be manipulated with an anchored arbitrary price, is quite eye opening for me.