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1-Page Summary of Predictably Irrational

Overview

This book is about how the human mind makes irrational decisions despite having all of the information and tools to make rational choices. These irrational decision-making behaviors are sometimes funny, but they can have serious implications for governments and health care systems. The first step in overcoming these issues is to recognize that we’re predisposed to making irrational decisions.

Most people do not realize that their minds will fail them at some point. For example, consumers may believe they are getting a good deal on a television when in reality they are just responding to the price of the product. This is because most people respond to relative price cues and stores use this fact to manipulate customers into paying more for an item than it’s really worth by making the first thing shoppers see very expensive and then putting lower-priced items near it later so that shoppers think they’re getting a better deal.

People are often irrational consumers, which can lead to poor decisions. For example, a study showed that people think a placebo is more effective as a painkiller when they think it’s expensive instead of cheap. This happens because of predictable patterns in human behavior. Therefore, we need to understand these patterns so that we can predict our own irrational behaviors and prevent them from making poor choices for ourselves or others.

In 2008, a book called Predictably Irrational was published. In 2010, it was revised and expanded.

Key Takeaways

All humans are irrational.

It is important to understand why people behave irrationally. We can use that knowledge to change their behavior and make them act more rationally. People value things differently depending on the context in which they are presented with those goods or services. They behave differently when offered a free item than when they have to pay for it, and also respond to social norms as opposed to market norms. When these two things get mixed up, people will be driven by market norms instead of social ones and cause harm in relationships rather than help them grow stronger.

People are often not good at predicting how they will react in a certain situation. People tend to overvalue things that they already own. The expectations we have for something also affect our perception of it.

People are more likely to engage in dishonest behavior when they don’t have actual cash at hand.

Key Takeaway 1: All humans inevitably behave irrationally.

Traditional economic theories often fail to capture how people will behave in reality. For example, a person may be willing to drive from one store to another for a discount on beer, but unwilling if the price is the same at both stores. People also act differently when something is free than they do once it’s assigned a price: for example, choosing only one cookie from an office jar so everyone can have some, but taking more than their fair share once there’s money involved.

While these examples may seem insignificant, the trend they express has major implications. Perhaps cap-and-trade policies will follow a similar pattern where governments feel that they can pollute more because they have paid for the right to do so. As a result, economic theories and policies should be based on how people actually behave instead of how they should behave.

Judges are often viewed as rational and fair. However, even they can be swayed by chance events and tiredness. A study of judges in Germany found that those who rolled a higher number on the dice were more likely to give longer sentences; those who rolled lower numbers gave shorter sentences. Similarly, another study showed that prisoners appearing before judges earlier in the day had a better chance of getting out than later in the day—as much as 70% versus 10%. The researchers said this was due to decision fatigue—that is, it’s hard for people to make good decisions after working hard at something mentally taxing all day long.