Predictably Irrational

I just finished reading a really interesting book called Predictably Irrational. It's a nonfiction hardcover about behavioral economics. Behavioral economics as a field is kind of what you would expect if you took psychology and yelled at it until it became more legitimate. Sorry, but I've never really respected Psychology as a science. A big part of this is because one afternoon I was walking behind a pair of psych students as they spoke about color perception. One touted that there would be no way of knowing if one person really saw green as blue, but called it green, or something like that. The other nodded the same hippie nod seen in countless Comparative Lit. majors. I instantly thought of a simple experiment where you set up a picture with a known wavelength of light, and ask the people to identify it... but I digress.

Back to the book. The book's central thesis is that the field of economics is based on an incorrect assumption: that we are rational beings. Dan Ariely, the author, contends that we are anything but. And, as the title would suggest, this irrational behavior happens in a very predictable manner. What does he mean by this, you ask?

I think the book is best served through an example of his studies. Let's say you have to decide between two European trips. One is a trip to Paris, with free breakfast at the hotel, and the other is a trip to Rome, with complementary beverages. These two present a tough choice to most people, and in studies they are chosen at a very similar clip. The interesting thing is that when a third choice (Paris with no breakfast) is entered these percentages change. The rational person's choice (a 50/50 split between the two) should be unaffected by the introduction of a third option that is obviously inferior to the other two. The thing is, though, that when the lesser Paris option is present, Paris with the free breakfast becomes a very popular choice. Why is that? Well, the idea behind this one is that people tie value to an object by its ability to compare. In this case, Paris and Rome are both excellent cities, and can be very tough to compare, so it's a coin flip between the two. But when a lesser Paris is introduced, the Paris with eggs/bacon gains extra value because we can compare it against another option very easily (even if the alternative is obviously crappy).

The book is full of random, interesting dissections of mankind's decision making skills, such as the above example. If you found it interesting, then I highly recommend that you read the book.