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Predictably Irrational by Dan ArielyPresentation Transcript
Predictably Irrational Dan Ariely
Behavioural EconomicsBy understanding our irrational quirks wecan retrain ourselves to make betterdecisionsDiscover why people fail to reason properlyTo help you fundamentally rethink whatmakes you and the people around you tick
Organ Donations 100 100 98 100 100% of drivers donating organs 86 75 50 25 28 17 12 0 4 Denmark Holland UK Germany Austria Belgium France Hungary Sweden
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The Truth About Relativity Why everything is relative even when it shouldn’t be We don’t have an internalvalue meter that tells us howmuch things are worth, rather we focus on the advantages of one thing over another
We like tomake decisions based on comparison
The Cost of Zero CostWhy we often pay too much when we payfor nothing
Lindt vs Hershey ◦ When a trufﬂe was $0.15 and a Kiss was $0.01, 73% of subjects chose the trufﬂe and 27% the Kiss ◦ When a trufﬂe was $0.14 and a Kiss was free, 69% chose the kiss and 31% the trufﬂe ◦ According to standard economic theory, the price reduction shouldnt lead to any behavior change (relative price and expected pleasure should be equal between the two experiments) ◦ The same experiments were conducted with Kisses going for $0.02, $0.01, and free...and free again made a huge difference.• Arielys theory is that for normal transactions, we consider both upside and downside. But when something is free, we forget
The difference between 1¢ and 2¢ is smallbut the difference between 1¢ and free ishugeAmazonFree can have a great deal of power!
The Cost of Social NormsWhy are we so happy to do things but notwhen we are paid toSocial Norms vs Market Norms These shouldn’t cross over
Social norms such as reciprocity are warmand fuzzyMarket norms are explicit and hard - youget what you pay forE.g. Lawyers working for $30/hour vsworking for free to needy employeesSocial norms are more effective in motivatingpeople
The Power of PriceWhy a 50¢ aspirin can do what a pennyaspirin can’tPlacebo EffectPlacebos run onthe power ofsuggestion
Does a pricier medicine make usphysiologically better than a cheapermedicine?E.g. Velodene capsule @ $2.50 (actually vit C)- it worked!When the “pain relief” was dropped to 10¢ -it only worked for half the people
The context of our characterWhy are we sodishonest and whatcan we do about it?
2 types of dishonesty Typical Crook The person who considers themselves honest
Honesty connected withour desire to pleaseComply with societiesethics Makes us feel good
The TenCommandments Test Benchmark of Ethical Thought
Cheating is one stepremoved from cashCashless Society - Weneed to realise this asdays of cash arecoming to a close
Where are the free lunches?We are far less rational in our decisionmaking than standard economics assumesOur irrational behaviours are systematic andpredictableWouldn’t economics make a lot more sense ifbased on we actually behave rather thanhow we should behave?