Predictably Irrational: The Hidden Forces That Shape Our Decisions
This book review brings us back to a few of my favorite topics out there: psychology, behavioral economics, and the science of making decisions. Predictably Irrational is about the irrationality that goes on behind-the-scenes in our decision making. If you’ve read Daniel Kahneman’s Thinking, Fast and Slow (review), you won’t find any new ideas in this book — but it may be worth a read for new examples and case studies.
I’ll keep this review really short and cover just three main ideas that I can still recall from this book.
1. Everything is relative
We always try and look for an anchor before making any purchase decision. Suppose you want to pick up a new hobby, say tennis, and want to buy a tennis racket. If you go to a sports goods store and all they have is one racket priced at $300, you won’t know what to make of it. However, if the store clerk shows you another racket which is only slightly better but is priced at $500, the $300 racket suddenly looks like a steal and you’ll be a lot more inclined to buy it. We usually don’t know what to make of individual numbers, and most of our buying decisions are driven by comparisons. If you’re trying to sell something, give your users easy comparisons to make so that they pick you.
2. The power of free
We know that free is one of the strongest emotional triggers out there — just reminding your users that something is free is enough to spur them into action. This is directly connected to loss aversion — our tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5.
3. The endowment effect
We value what we already own a lot more than it deserves to. We hate losing things that we have, and don’t really mind so much if we miss something altogether. This is the endowment effect, and it plays a huge role in our decision making.
I read this one a while ago, so I don’t really remember much from it.
Reading, after all, is forgetting.
This is #37 in a series of book reviews published weekly on this site.
