How much I want to read more: 7/10
A Note to Readers
Over the years I’ve tried to understand the silly, dumb, odd, amusing, and sometimes dangerous mistakes we all make
Why do we get overexcited when something is FREE!?
What role do emotions play in our decisions?
How does procrastination play games with us?
What are the functions of our strange social norms?
Why do we hang on to false beliefs despite evidence to the contrary?
“that when there is a lot of money on the table, people think especially hard about their options and do their best to maximize their returns.”
“Doing their best,” I would say in rebuttal, “is not the same as being able to make optimal decisions. What about individual investors, who put all their money in their own company’s stock, don’t diversify enough, and lose a substantial part of their fortune? What about people who are approaching their sixtieth birthday and still don’t contribute to their 401(k)s?
How an Injury Led Me to Irrationality and to the Research Described Here
And understanding the dynamics of impulsive eating has implications for every other impulsive decision in our lives—including why it’s so hard to save money for a rainy day.
My goal, by the end of this book, is to help you fundamentally rethink what makes you and the people around you tick.
Once you see how systematic certain mistakes are—how we repeat them again and again—I think you will begin to learn how to avoid some of them.
Tragically, my introduction to this arena started with an accident many years ago that was anything but amusing.
An explosion of a large magnesium flare, the kind used to illuminate battlefields at night, left 70 percent of my body covered with third-degree burns.
I felt partially separated from society and as a consequence started to observe the very activities that were once my daily routine as if I were an outsider.
For example, I started wondering why I loved one girl but not another, why my daily routine was designed to be comfortable for the physicians but not for me, why I loved going rock climbing but not studying history, why I cared so much about what other people thought of me, and mostly what it is about life that motivates people and causes us to behave as we do.
The nurses, I quickly learned, had theorized that a vigorous tug at the bandages, which caused a sharp spike of pain, was preferable (to the patient) to a slow pulling of the wrappings, which might not lead to such a severe spike of pain but would extend the treatment, and therefore be more painful overall.
I told the nurses and physicians, that people feel less pain if treatments (such as removing bandages in a bath) are carried out with lower intensity and longer duration than if the same goal is achieved through high intensity and a shorter duration.
to study everything from our reluctance to save for retirement to our inability to think clearly during sexual arousal.
I believe that recognizing where we depart from the ideal is an important part of the quest to truly understand ourselves.
Understanding irrationality is important for our everyday actions and decisions, and for understanding how we design our environment and the choices it presents to us.
My suggestion to you is to pause at the end of each chapter and consider whether the principles revealed in the experiments might make your life better or worse, and more importantly what you could do differently, given your new understanding of human nature. This is where the real adventure lies.
Chapter 1 - The Truth about Relativity
Why Everything Is Relative — Even When It Shouldn’t Be
- Internet-only subscription for $59.
- Print-only subscription for $125.
- Print-and-Internet subscription for $125.
I suspect it’s because the Economist’s marketing wizards (and I could just picture them in their school ties and blazers) knew something important about human behavior: humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.
you could reasonably deduce that in the combination package, the Internet subscription is free! “It’s a bloody steal—go for it, governor!” I could almost hear them shout from the riverbanks of the Thames.
most people don’t know what they want unless they see it in context.
We don’t know what kind of racing bike we want—until we see a champ in the Tour de France ratcheting the gears on a particular model.
We don’t know what kind of speaker system we like—until we hear a set of speakers that sounds better than the previous one.
We don’t even know what we want to do with our lives—until we find a relative or a friend who is doing just what we think we should be doing.
Which one would you choose?
- 36-inch Panasonic for $690
- 42-inch Toshiba for $850
- 50-inch Philips for $1,480
given three choices, most people will take the middle choice.
Economist's options: suppose that I removed the decoy so that the choices would be:
- Internet-only subscription for $59.
- Print-and-Internet subscription for $125.
it should make no difference. Right?
Nothing rational, hence the predictably irrational.
Just like a circle among big ones versus the same circle among small ones look different in perspective.
we are always looking at the things around us in relation to others. We can’t help it.
We always compare jobs with jobs, vacations with vacations, lovers with lovers, and wines with wines.
we not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable—and avoid comparing things that cannot be compared easily.
Ex: Suppose you’re shopping for a house in a new town. Your real estate agent guides you to three houses, all of which interest you. One of them is a contemporary, and two are colonials.
We like to make decisions based on comparisons. In the case of the three houses, we don’t know much about the contemporary (we don’t have another house to compare it with), so that house goes on the sidelines. But we do know that one of the colonials is better than the other one. That is, the colonial with the good roof is better than the one with the bad roof. Therefore, we will reason that it is better overall and go for the colonial with the good roof, spurning the contemporary and the colonial that needs a new roof.
In essence, introducing (-A), the decoy, creates a simple relative comparison with (A), and hence makes (A) look better, not just relative to (-A), but overall as well.
For most people, the decision between a week in Rome and a week in Paris is not effortless. Rome has the Coliseum; Paris, the Louvre. Both have a romantic ambience, fabulous food, and fashionable shopping. It’s not an easy call. But suppose you were offered a third option: Rome without the free breakfast.
The comparison between the clearly inferior option (-Rome) makes Rome with the free breakfast seem even better. In fact, -Rome makes Rome with the free breakfast look so good that you judge it to be even better than the difficult-to-compare option, Paris with the free breakfast.
Another experience to test if the existence of the distorted picture (-A or -B) would push my participants to choose the similar but undistorted picture. In other words, would a slightly less attractive George Clooney (-A) push the participants to choose the perfect George Clooney over the perfect Brad Pitt?
It did, This was not just a close call—it happened 75 percent of the time.
Another real example:
When Williams-Sonoma first introduced a home “bread bakery” machine (for $275), most consumers were not interested.
Flustered by poor sales, the manufacturer of the bread machine brought in a marketing research firm, which suggested a fix: introduce an additional model of the bread maker, one that was not only larger but priced about 50 percent higher than the initial machine.
People now could say: “Well, I don’t know much about bread makers, but I do know that if I were to buy one, I’d rather have the smaller one for less money.” And that’s when bread makers began to fly off the shelves.
What if you are single, and hope to appeal to as many attractive potential dating partners as possible at an upcoming singles event? My advice would be to bring a friend who has your basic physical characteristics (similar coloring, body type, facial features), but is slightly less attractive (-you).
By comparison, you’ll sound great.
It was for good reason, after all, that the Ten Commandments admonished, “Neither shall you desire your neighbor’s house nor field, or anything that belongs to your neighbor.”
This might just be the toughest commandment to follow, considering that by our very nature we are wired to compare.
Another effect with revealing CEO salary publicly:
All this extravagance in CEOs’ pay has had a damaging effect on society. Instead of causing shame, every new outrage in compensation encourages other CEOs to demand even more.
a physician explained that he had graduated from Harvard with the dream of someday receiving a Nobel Prize for cancer research.
But a few years later, he realized that several of his colleagues were making more as medical investment advisers at Wall Street firms than he was making in medicine.
He had previously been happy with his income, but hearing of his friends’ yachts and vacation homes, he suddenly felt very poor. So he took another route with his career—the route of Wall Street.
He had not won the Nobel Prize, but he had relinquished his dreams for a Wall Street salary, for a chance to stop feeling “poor.”
The good news is that we can sometimes control the “circles” around us, moving toward smaller circles that boost our relative happiness.
If we are at our class reunion, and there’s a “big circle” in the middle of the room with a drink in his hand, boasting of his big salary, we can consciously take several steps away and talk with someone else. If we are thinking of buying a new house, we can be selective about the open houses we go to, skipping the houses that are above our means. If we are thinking about buying a new car, we can focus on the models that we can afford, and so on.
We can also change our focus from narrow to broad.
Suppose you have two errands to run today. The first is to buy a new pen, and the second is to buy a suit for work. At an office supply store, you find a nice pen for $25. You are set to buy it, when you remember that the same pen is on sale for $18 at another store 15 minutes away. What would you do? Do you decide to take the 15-minute trip to save the $7? Most people faced with this dilemma say that they would take the trip to save the $7.
Now you are on your second task: you’re shopping for your suit. You find a luxurious gray pinstripe suit for $455 and decide to buy it, but then another customer whispers in your ear that the exact same suit is on sale for only $448 at another store, just 15 minutes away. Do you make this second 15-minute trip? In this case, most people say that they would not.
In reality, of course, $7 is $7—no matter how you count it.
The only question you should ask yourself in these cases is whether the trip across town, and the 15 extra minutes it would take, is worth the extra $7 you would save. Whether the amount from which this $7 will be saved is $10 or $10,000
selling his Porsche Boxster and buying a Toyota Prius in its place.
“I don’t want to live the life of a Boxster,”
“because when you get a Boxster you wish you had a 911, and you know what people who have 911s wish they had? They wish they had a Ferrari.”
That’s a lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity.