Predictably Irrational: The Hidden Forces That Shape Our Decisions is a book by Dan Ariely. The author challenges the readers' rationality while making decisions.

1. Predictably Irrational: The Hidden Forces That
Shape Our Decisions
- Dr. Dan Ariely
Traditional finance and economics work on an assumption that people act rationally and make
decisions based on their own best interests. But this is unrealistic, Finance and economics should be
based more on how people really behave.
People behave irrationally, and make same mistakes repeatedly. Hence, are predictably irrational.
Submitted by:
Sonakshi Gupta
19DM217

2. 1. The truth about relativity
> People compare things
> Look at comparable things relatively
2. The fallacy of supply and demand
> Set initial price as the anchor, on the basis of which future paying willingness is
based
> Price "memory" can also have a major impact.
> Self-herding: which is when we think something is good or bad based on our own
previous behavior
3. The cost of zero
> We often pay too much when we pay nothing
> Free is better than a mere discount
> zero price effect: People will jump for
something free even when it’s something
they don’t want

3. 4. The cost of social norms
> The norms of the market and our social life are different and we live in both worlds at
the same time
> Money is a costly way to motivate people, social norms cost less
> Companies occasionally try to leverage social norms as they build loyalty and engage
people
5. The influence of arousal
> When emotions run high, logic runs low and the social norms suffer
> To make better decisions, we must prepare for the hot state while we are cool in order
to avoid bad decisions
6. The problem of procrastination and self control
> The problem is that when we make our plans, we’re in a cool emotional state. But real
life circumstances bring hot emotions
> Pre-commitment

4. 7. The high price of ownership
> Our society is focused on ownership
> We should approach our ownership decisions rationally and systematically
> For Example: Real Estate Bubble in 2008
8. Keeping doors open
> We like to keep our options open
> All of these options come with a cost: time and money
> We have to set priorities
9. The effect of Expectations
> The real interesting thing is that it’s not just perception, expectations change
the actual experiences that we have

5. 10. The power of price
> Placebo effect: faith and conditioning and familiarity
> Placebos in other areas can actually deliver positive end
outcomes but in investments, these ineffective activities
do not assist us in meeting our end objectives.
11. The context of our character
> Trust is important to a well-functioning economy & transactions require trust
> People cheat much less if they are reminded of morals and honesty
> Cash is something that we’re usually honest about in general
CONCLUSION: We are predictably irrational. We should develop systems to mitigate our predictable
and systematic mistakes. There are tools and theories that can help us make better decisions.