predictably irrational the hidden forces that shape our decisions

If Ariely has given the effect of competition any thought, he keeps it to himself. He then discusses some experiments that he interprets as showing that “initial prices are largely ‘arbitrary’” and influence “not only the immediate buying decision but many others that follow.” In other words, if businesses can get us to pay high prices initially then we, as irrational as we are, continue to find those prices acceptable.īut even if consumers are as irrational as Ariely would have us believe, they are still protected by private-sector competition that has driven down the real prices-while improving the quality-of televisions, electronic calculators, digital cameras, personal computers, life-saving medications, and a host of other products.

(The best example is the argument Richard Thaler and Cass Sunstein make for “libertarian paternalism.”) Ariely shows no such restraint, saying that he wants more government regulation because irrationality renders markets unable to work properly.Īriely’s chapter “The Fallacy of Supply and Demand” begins with the story of an entrepreneur who took black pearls of “dubious worth” and turned them into a high-priced luxury item. One suspects that some behavioral economists favor more government direction, but they typically argue for what they see as a benign government role. But most are cautious in concluding that the irrationalities they observe make a case for relying more on government to direct economic decisions.

Most behavioral economists see their findings as suggesting some qualifications to utility maximization as the basis for describing economic behavior. My concern is with what Ariely sees as the implications of these deviations from rationality.Īriely’s book is more interesting than most on behavioral economics because of the bold claims he makes. The robustness of some of these experiments is controversial in some academic circles, but for purposes of this review I accept the results as reported by Ariely (who teaches behavioral economics at Duke’s Fuqua School of Business) and other experimental economists. The evidence for this comes largely from experiments which find people making decisions that deviate from what one would expect from the standard economic models of rational self-interest (for example, giving less weight to opportunity costs than to out-of-pocket costs).

Thus our lapses from rational behavior reinforce each other rather than cancelling out. The overriding theme is that people not only tend to behave irrationally, but they do so in systematic and predictable ways. As the title suggests, Predictably Irrational is another offering on behavioral economics.

Predictably irrational the hidden forces that shape our decisions