Overall a fantastic book detailing human behavior from a psychological and economic point of view. My favorite chapter was Cost of Social Norms, as it opened my eyes to a new point of view on interactions in a professional context. Dan Ariely does an amazing job detailing caveats of human irrationality throughout the book and I would say a must read for anyone.
Chapter 1: The Truth About Relativity
- Objectivity is nearly impossible
- how much is something actually worth?
- People make relative decisions on worth.
- They like the better of some options but not the best
- Think bread makers - when they don’t sell because they are new, introduce a second, more expensive bread maker and the cheaper one will sell.
Chapter 2: The Fallacy of Supply & Demand
- Demand can be manufactured
- Black pearls made in high demand simply by positioning.
- Anchoring - the first price you hear foro a product or category tends to stick.
- Positioned itself differently to remove Dunkin Donuts’ price anchor for coffee (why should I pay $4 for a cup of coffee?)
- Once you go a few times, your decision making for going again is akin to seeing a line out the front door (it’s clearly popular because I’ve been.)
- Tom Sawyer showed a low supply product (painting fence) and raised demand.
- What if we are the sum of our first, naïve, myopic decisions?
- Continually question our decisions
- How much benefit does something actually bring?
- Prices can influence willingness to pay
- Demand is not entirely separate from supply
- People like to make well thought out decisions but want to arrive at a, probably, preconceived conclusion
Chapter 3: Cost of Zero Cost
Zero!is a powerful marketing tactic
- The laws of demand tend to break down with
- So powerful, sometimes (or often) makes consumers miscalculate outcomes
- All transactions have upside and downside. Free has no downside with some guaranteed upside.
- AMZN shipping for free vs $.20
- Massive difference in spending when free, even though 20 cents (1 Franc) was next to nothing.
- Zero calories vs. 1 calorie
- Paying for dinner
- Each incremental dollar paid is less pain (diminishing sensitivity) and thus it’s always better for one person to pay the whole bill instead of split.
Chapter 4: The Cost of Social Norms
- Social norms vs. market norms
- Social much stronger but they cannot be mixed
- Once market norms are brought in, social norms will likely not return
- Do work as favor is okay & fair wage okay, but for small $ amount won’t work
- Gifts work, but not when a price tag is attached
- When price tag attached, gifts just the same as market norms
- Doing tasks after having heard sentences like “High paying salary” lead people to be more market minded & less social (compared to phrases like “It’s cold outside”)
- Ask for help less
- Less likely to offer help
- Thus even mentioning prices move us into market norms.
- Picking up kids @ daycare: social vs $ penalty
- Once reversed from social -> market -> social, the parental behavior didn’t change.
- Social norm goes away for a long time.
- Gifts vs. Cash bonuses
- Police & firefighters vs. border / customs agents
- Education goals
- Burning man & sharing economy
- Seinfeld maid & dating.
Chapter 5: The Power of a Free Cookie
- Filene’s basement dress sale
- All social norms go out the window b/c of huge savings
- Cookies from coworker
- When free, I’ll consider hunger, calories, love of cookies, social pressures of taking too many.
- When they cost $0.05 I won’t consider social norms
- Starburst experiment
- $0.01 per candy obeys demand laws
- Free people take FEWER! (odd because doesn’t follow rational market economics)
- When price is not part of exchange, we become less selfish maximizers & care about welfare of others
- Last sushi piece
- Effort is somewhere between market and social norms
- Carbon taxes skews the line because it may increase carbon.
- When emotions are piqued it’s hard to take others emotions into account.
Chapter 6: Influence of Arrousal
- When aroused, choices are different than when not
- Hard to predict behavior
- Maybe true for other emotions as well
Chapter 7: The Problem of Procrastination & Self Control
- Credit usually defaults or becomes expensive due to procrastination
- US personal saving rates are < 0%
- Impulses divert from long term goals
- Pro - for; cras -> tomorrow
- Study allowing students to set deadlines (A) vs imposed deadlines (B) vs no deadlines (end of semester) (C)
- Grades, in order, were B, A, C
- Parental voice causes us to pay attention
- Precommitting to healthcare (e.g. refunded deposit to get cholesterol checked) may help us actually get it done.
- Ford cars needed checkups, but differed per model
- Made the 5,000; 10,000; 25,000 mile checkups
- Perfect mix of authoritative & self imposed
- Initially a tough sell internally b/c mustang is different from F-150
- Made the 5,000; 10,000; 25,000 mile checkups
Chapter 8: The High Price of Ownership
- Duke basketball tickets
- People stand inline for a long long time to join a lottery
- Those who get tix value the tickets really high because of an emotional response
- Those who don’t value them really low because they see the monetary value.
- Difference is large ($2400 vs. $175)
- We fall in ove with what we already have
- We focus on what we may lose instead of gain (when selling)
- We assume others will see transaction from our perspective
- Virtual ownership
- Think long running eBay auctions (like I already own it)
- Upgrading for free for a limited time (downgrade rarely happens)
- Moving from ownership to pre ownership feels like a loss
Chapter 9: Keeping Doors Open
- We work hard to keep doors open
- Buy bless and whistles just in case
- Picking majors in school
- Maximizing profit while clicking (game, experiment)
- People always try to keep doors open even if those doors don’t maximize profit
- Sad side are when we don’t realize there are slowly closing doors
- Kids growing up
- Donkey starving to death between two bales of hay
Chapter 10: Effect of expectations
- Beer test with adding balsamic vinegar
- If not told, peple prefer balsamic to crappy beer
- If told about vinegar before, people hate it
- If told about afterward, people like it as much as if never told
- Expectations drive results
- Joshua Bell in subway
- Do settings really matter (probably)
- Names on menus
- Pepsi Challenge
- Expectations & stereotypes
- Asians good at math, women bad at math; When Asian women asked to do math, it depended on precondition – were they thinking about their cultural background or gender background before?
- Alexander Pope: Blessed is he who expects nothing
Chapter 11: The Power of Price
- Placebo surgeries can sometimes prove the surgery has not added benefit
- A more expensive medication (even if medication is a placebo) has a stronger effect
- If a placebo is primed (SoBe causes better test taking) the higher price still has a stronger effect
- Divine touch from kings
- Physicians prescribe placebos a lot (antibiotic placebos for viral infections)
- Are placebos good or bad?
- W/o using placebos we can’t improve or test
- W/ placebos people may die now
- Airborne was placebo that worked (but ended up being screwed up by warnings on the packaging.)
Chapter 12: The Cycle of Distrust
- Spam email; fine print; marketing ploys
- Free money experiment
- Giving away free money (printed on sign how much)
- Only 1% of people walking by stopped for $1, only 19% for $50
- All believed there was a catch
- Tragedy of the commons & game theory
- Snake oil salesmen
- Lying on dating sites – You’re expected to lie so when you don’t it’s bad
- True statements when “endorsed” by companies (DNC, RNC, P&G) breed mistrust
- Same statements w/o endorsements do not.
- Listening to speakers with brochure vs consumer reports – people tended to think the speakers were better with consumer report instead of brochure.
- Transparency is rare for a company
Chapter 13: The Context of Our Character, Part 1
- People steal, a lot
- Difference between robbing & white collar crime
- Think over deducting on taxes vs. bank robbery
- Experiments tempting people to cheat
- When tempted, people cheat a little, but could do a lot more
- When asked to remember 10 commandments, no cheating!
- Even if they didn’t know more than a couple of them – just the thought of a code of laws was enough.
- Seems superego keeps people from cheating egregiously
- Cheating a little does not activate superego
- Problem is some cheat a lot
- Could professional oaths help solve issue?
- Degradation of proffesions with oaths (doctors, lawyers)
- Seems people are tempted to cheat for personal gains (Tragedy of Commons)
- Asking people to sign a non-existant honor code stopped cheating
- Thus, just thinking about existence of a code stops people
Chapter 14: The Context of Our Character, Part 2
- Dollar bills make people more honest
- Removing direct link to money (coca cola in fridge) makes people less so
- Would Enron guys have robbed from old ladies? (no) but they took money from them indirectly from pension funds.
- Experiment: Give tokens worth $.50 that could be exchanged 12 feet away vs giving $.50 directly. Way more cheating in former case.
- Cheating when reporting losses, wardrobing, expense reports
- Human nature can cause people to be dishonest when not directly connected with $$$
- Frequent flyer miles BS with airlines; Credit card companies
- Essentially robbery, but not directly so feels more okay.
- What happens when we no longer use cash directly?
Chapter 15: Beer & Free Lunches
- People try to make unique orders (in our culture, not necessarily in others)
- Best utility when ordering is to order first, or at least say your desire out load to get “dibs” on it.
- Free lunches shouldn’t exist because they should be eaten already