Predictably irrational
The truth about relativity
- we are wired to compare things
- similar things are easier to compare
- the decoy effect (Paris without coffee, Paris, London)
The fallacy of supply and demand
- demand can be created (story of Tahitian black pearls)
- anchoring effect, arbitrary coherence
- self-herding (switching from Dunkin’ Donuts to Starbucks)
- question your habits!
- pay attention to the first decision
The cost of zero cost
- presence of free may lead us to make a bad choice
- when something is free, we forget the downside (loss aversion)
- zero price effect
- pain of paying (one person should pay the entire bill)
The cost of social norms
- voluntary, gifts keeps us in social norms, money gets us to market norms
- even thinking about money shifts us towards market norms
- open source is primarily in the realm of social norms
- improving the education system by igniting a social passion
- Burning Man and its rejection of market norms (money not allowed)
- gifts are financially inefficient, but they are an important social lubricant
The power of a free cookie
- when price is reduced to zero, people sacrifice their own desired for the benefit of others (social norm)
- same thing happens in a communal plate of food (the last piece is left)
- effort manages to keep a large part of the social norms
- the dark side of putting a price on pollution
The influence of arousal
- magnitude of underprediction of how arousal affects our decision making was substantial
- prediction what we will do in a different emotional state is extremely difficult
The problem of procrastination and self-control
- equally spaced externally enforced deadlines is the best cure for procrastination
- without precommitments, we keep on falling for temptation
- commit up front to a fix schedule
- schedules of reinforcement (magic of gambling and playing the lottery, occasional nice email/new article)
- create positive associations to encourage good behaviors
- our top killer is our inability to make smart choices and overcome our own self-destructive behaviors
The high price of ownership
- ownership changes our perspective
- we fall in love with what we have
- we focus on what we may lose rather than what we may gain
- we assume other people will see the transaction from our perspective
- “virtual ownership” in the case of online auctions/trial promotions
- view all transactions as if you were a nonowner
- “The Lake Wobegone Effect”
Keeping doors open
- people are beset not by a lack of opportunity, but by a dizzying abundance of it
- irrational impulse to chase worthless options
- consciously start closing some of our doors
- take into account the consequence of not deciding (story of starving donkey and similar stacks of hay)
The effect of expectations
- expectations can alter our experience
- Coke vs Pepsi experiment
- stereotypes can affect our behavior
- Joshua Bell’s performance at the Metro
- positive expectation allow us to enjoy things more and improve our perception of the world
The power of price
- pricey medicine do make us feel better
- placebos run on the power of suggestion
- SoBe drink (message + price was more powerful than the beverage)
- consumers who stop to reflect the relationship between price and quality are less likely to assume a discounted drink is less effective
The cycle of distrust
- evidence of deep mistrust in people
- tragedy of the commons
- erosion of trust over time (dating site, resumes)
- origin of a statement affects our trust
- boy who cried wolf
Why we are dishonest
- two types of dishonesty (out right criminals vs white collar crime)
- our internal honesty monitor is active only when we contemplate big transgressions
- all participants cheat a little, independent of the risk of being caught
- thinking about an honor code stops cheating!
Dealing with cash makes us honest
- the further away from cold hard cash, the easier it is to cheat
- taking a pencil from work vs taking 50cents from the petty cash
- when we deal with money, we are primed to think about out actions as if we had just signed an honor code
Beer and free lunches
- announcing orders in public alters the choices (in some societies people want to feel unique, in others people want to belong to the grouop)
- plan your order before the waiter arrives
- basis of free lunches: providing benefits for all the parties involved