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August 01, 2008 at 04:00 AM
Why do so many people live beyond their means? Or why do people plan to diet and exercise, but fail to do so? Or why can’t we resist the “Buy One Get One Free” deals when we don’t really want what is being offered? These and other questions are explored by Dan Ariely, a behavioral economist and professor at the Massachusetts Institute of Technology. In his new book, Predictably Irrational, he examines the irrationality of human behavior and how it affects every aspect of our lives. The book details a number of experiments conducted by Ariely and his MIT students to explore what influences our decision-making processes.
Ariely writes that most people don’t know what they want unless they see it in context. For instance, buyers often make decisions based on how a product is priced relative to others. A television salesperson will put together a display such as this:36-inch Panasonic for $69042-inch Toshiba for $85050-inch Philips for $1,480
Most customers find it difficult to compute the value of different options. “But given three choices, most people will take the middle choice,” writes Ariely, noting the middle choice is most likely the one that the salesperson most wants to sell.
In our quest for the best, most consumers are now programmed to purchase $4 cups of coffee at Starbucks and to always have the cutting edge cell phone. And are buyers getting their money’s worth? Ariely writes that by becoming aware of irrational behavior, readers can train themselves to question repeated behaviors. “In the case of the cell phone, could you take a step back from the cutting edge, reduce your outlay and use some of the money for something else? And as for the coffee…ask yourself whether you should even be having that habitual cup of expensive coffee at all.”
Ariely presents a different experiment in each chapter of the book. For instance, he discusses “The Cost of Zero: Why We Often Pay Too Much When We Pay Nothing.” Zero, he points out, is not just a price, but an emotional hot button. “It’s no secret that getting something free feels very good,” he writes. Yet, there are other costs involved.
