I waited all summer for Dan Ariely’s Predictably Irrational: The Hidden Forces that Shape Our Decisions to come to my library, but it didn’t happen and I ended up picking up a copy in the airport. Glad I did. While it didn’t totally grab me as I was reading it in a way that Freakonomics or The Tipping Point did, my husband and I keep referring to bits and pieces of it even a week or two after we both read it. Hence, I’m upgrading my initial reaction from interesting to somewhat significant.
The premise of the book is: We are all irrational beings. However, our irrationality happens again and again, thereby making us “predictably irrational.” So, I guess this is like me encouraging my friends to date against type because their type hasn’t ever seemed to work out. (On a side note–the hubby I mentioned? Definitely wasn’t my “type.” But he is now!) But let’s talk about how we all make irrational choices.
Ariely opens the book with a description of an online ad for The Economist magazine, which has tiered pricing:
- $59.99 for a one-year subscription just to the website.
- $125 for a one-year subscription to the print magazine.
- $125 for a one-year subscription to the print magazine plus website.
Looking at this, it’s clear that option 2 is not that appealing–so, why put it in? Ariely’s theory is that people might have a hard time choosing between options 1 and 3 if there were no number 2. By including option 2, it’s clear that 3 is a much better deal because it gives potential subscribers a “relativity point.” Giving people a relativity point, regardless of its value, allows you to manipulate people to buy what you want them to.
Along this line was a later discussion where he talks about how people are swayed by getting something for ““free.” (Speaking of “swaying,” I have Sway on my library request list . . . anyone read it yet?) But, back to Predictably Irrational and why we are suckers for “free.”
One example he uses is when Amazon began offering free shipping if you spend more than a certain dollar amount. I confess I’m always adding in something I didn’t necessarily need or want in order to get that free shipping. (Of course I try to find the item that is the closest to hitting the mark without going over–which generally means a children’s paperback book.) This was a great revenue generator for Amazon except in France, where it noticed no increase–because in France Amazon was offering shipping for one franc (rather than free), which is only about 20 cents (or probably less now). That’s not a huge difference from “free,” but when Amazon changed France to free shipping, revenue increased.
So what is the pull of the word “free”? It’s that we have nothing to lose. Even paying 20 cents is losing something, even if insignificant. I’ll be testing some of this out later this fall on www.DowntownWomensClub.com. It should be interesting.
Entrepreneurial lesson: Create relativity in your pricing to encourage people to purchase the one you want, and give away something for free.
I also found the discussion in Chapter 4 about the problems with mixing social norms and business norms interesting. Basically, it’s why you should never offer to pay your mother-in-law in cash for making Thanksgiving dinner. Making a nice dinner for the family is something people want to do within a social realm. To offer them money for it makes it like work and therefore a business transaction. He has some humorous dating examples. But generally, he found that people are more likely to work harder at smaller tasks when they think they are doing you a favor than if you pay them. Ask a friend to move a couch and he’ll be there. Offer to pay him to help you move your whole apartment, and he’ll probably claim to be doing laundry all day.
Other good sections include the discussion on procrastination and self-control. In the latter I found his anecdote about telling a credit card company how “self-control” credit cards (i.e., ones that have small caps on them to keep people from spending more than they have) would be a good investment. Even he laughs at himself, as only an optimistic academic wouldn’t realize that the whole goal of the credit card companies is to get us all to spend beyond our limits.
I thought his discussion on why we like to keep our options open reminiscent of Barry Schwartz’s The Paradox of Choice: Why More is Less. When given too many choices, it promotes inaction or dissatisfaction with your choice. I hear this is getting to be a problem with Match.com. People have too many choices to ever be entirely happy with anyone they date. But it’s not just dating where too much choice can become problematic.
I experienced this recently when I was trying to purchase a membership online to our local arts center. It had so many options/price points for memberships that I couldn’t figure out what was the best for me and my family. So I did nothing. Then when a friend called me to be on the advisory board for the center, I apologized for not joining yet, but said I didn’t know which to choose. She told me the level that would get what I wanted (discounted art lessons for the kids), and I did it ASAP. My first task on that advisory board? Fix the pricing. Will refer to the tiered-plus-free approach above.
Entrepreneurial lesson: Keep purchasing choices simple and straightforward: fewer choices = more purchases.
Admittedly I got a bit tired of the stats/tests by the end, but there is a lot of great information worth going back and looking at. But I’ll end on this one anecdote.
One of Ariely’s experiments involved him serving beer in a local brewpub. Just by chance, one of the patrons was a former colleague of Ariely’s. The colleague thought that Ariely was waiting tables for a living. What I liked was that the colleague went out of his way to tell Ariely how much he liked his last paper, clearly in an effort to make him feel better. Now, that’s the type of predictably irrational behavior I like in humans–random acts of kindness.
Top Shelf Bottom Line: Predictably Irrational is this year’s trend book and good fodder for cocktail banter. Not to mention there are some fun tests to try on your friends. But the bits on how people make choices when it comes to purchasing are really helpful for entrepreneurs trying to get people to click on that “buy now” button.
This entry was posted on Wednesday, August 6th, 2008 at 2:15 pm and is filed under Nonfiction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
