In Predictably Irrational, Dan Ariely discusses the “hidden forces that shape our decisions”. He looks deeply into how and why people make irrational decisions, but he also explains how we can improve our decision-making to act more rationally. This irrational behavior is consistent enough across populations to where it can be argued that people do not always act rationally. For some reason, we fall victim to anchoring, we cannot properly evaluate the concept of zero, and we always need to keep our options open. These three examples are only a few reasons why we do not always act in our best interest.
Anchoring is a cognitive bias that describes our tendency to rely too heavily on the first piece of information given (the anchor), even …show more content…
Dan Ariely was interested in how the use of FREE! somehow always peaks our interests, and sometimes even forces us to make mistakes against our best interest. The problem of FREE! doesn’t arise when deciding whether or not to take FREE! things; instead, it arises when money is involved and we have to decide the value of FREE! as compared to the monetary counterpart (Ariely, 2010). Dan Ariely went to one of the malls in Boston to measure the effect of FREE! by asking participants two questions. Would they rather have a free $10 Amazon gift certificate or a $20 gift certificate for seven dollars? Most of the people tested jumped at the FREE! certificate, even though it made less financial sense to pick this option. Because the $20 gift certificate offered a $13 profit, while the other offered a $10 profit, it would be irrational to choose the $10 Amazon card. For some reason, just by adding the word “free” in front of the first option, Dan Ariely made participants much more likely to choose it. An explanation for this irrational thinking is that we view payments as automatically a worse option than FREE! even when it makes less sense to choose the FREE! option. To further prove this point, Dan decided to offer the $10 card for $1, and the $20 card for $8. In this case, almost everyone chose the $20 card giving them the highest profit (Ariely, 2010). This proves the point that people are more likely to choose the FREE! option over the option requiring a payment (even though it is the highest-paying option) solely because of the word “free”. If people acted rationally, FREE! would have little to no effect on our decision making, and the majority of people would choose the option that makes more financial sense. Because people do not always act in their own best interest, they are tricked by the inclusion of
Anchoring is a cognitive bias that describes our tendency to rely too heavily on the first piece of information given (the anchor), even …show more content…
Dan Ariely was interested in how the use of FREE! somehow always peaks our interests, and sometimes even forces us to make mistakes against our best interest. The problem of FREE! doesn’t arise when deciding whether or not to take FREE! things; instead, it arises when money is involved and we have to decide the value of FREE! as compared to the monetary counterpart (Ariely, 2010). Dan Ariely went to one of the malls in Boston to measure the effect of FREE! by asking participants two questions. Would they rather have a free $10 Amazon gift certificate or a $20 gift certificate for seven dollars? Most of the people tested jumped at the FREE! certificate, even though it made less financial sense to pick this option. Because the $20 gift certificate offered a $13 profit, while the other offered a $10 profit, it would be irrational to choose the $10 Amazon card. For some reason, just by adding the word “free” in front of the first option, Dan Ariely made participants much more likely to choose it. An explanation for this irrational thinking is that we view payments as automatically a worse option than FREE! even when it makes less sense to choose the FREE! option. To further prove this point, Dan decided to offer the $10 card for $1, and the $20 card for $8. In this case, almost everyone chose the $20 card giving them the highest profit (Ariely, 2010). This proves the point that people are more likely to choose the FREE! option over the option requiring a payment (even though it is the highest-paying option) solely because of the word “free”. If people acted rationally, FREE! would have little to no effect on our decision making, and the majority of people would choose the option that makes more financial sense. Because people do not always act in their own best interest, they are tricked by the inclusion of