Predictably Irrational: The Hidden Forces That Shape our Decisions

The predominant view of human nature—a view shared by many traditional economists, policymakers, and laypeople—is that humans are rational and make the right decisions. Through experiments and anecdotes, however, Ariely shows that humans are far less rational than assumed by standard economic theory. Irrational human behavior is also “systemic and predictable” (317), hence the book’s title, Predictably Irrational.

There are forces, tied to the brain’s wiring, that deeply influence human behavior. Despite the power of these forces, people tend to underestimate or ignore them. These forces are what cause us to repeat mistakes in predictably irrational ways: “In essence, we are limited to the tools nature has given us, and the natural way in which we make decisions is limited by the quality and accuracy of these tools” (321).

Most of his book examines the forces that contribute to poor decisions. For example, early 1990s federal securities regulators forced companies for the first time to openly publish top executives’ pay, bonuses, and benefits. By revealing these details, regulators hoped to stop excessive executive compensation—but the salaries further skyrocketed. Illustrating the force of relativity, CEOs were now able to see their peers’ pay, and they could compare their own compensation and negotiate for more money. If federal securities regulators had understood the psychological import of relativity, they might have created a policy that circumvented this behavior.

The concept of zero also presents predictable irrationality. People are more likely to select a calorie-free beer than a one-calorie beer, though the calorie difference is negligible. People also might go to a museum on its free-entrance day, even knowing that the lines will be long, it will be overcrowded, and it will be hard to see the exhibits. FREE! is an emotional hot button, one that is often irresistible.

Predictably irrational behavior is not always bad. Even while placebo experiments might compromise subjects’ health, these experiments determine treatment efficacy. Cardiologists spent decades tying up the internal mammary artery to reduce chest pain—until a scientifically controlled surgical trial, which included a placebo surgery, demonstrated this treatment only provided short-term relief, contrary to medical understanding. While the placebo effect is irrational, it advances research and improves the quality of life for many.