Book Price Comparisons
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 Review As a college student with very little time for extra reading, I really enjoyed Predictably Irrational and found it hard to put down. After reading a chapter, I would spend the walk to class the next morning discussing it with my friends to tell them what I had learned and to get their input. It was very accessible and thought provoking.  Popular economics with a twist - people aren't always rational... very interesting. Dan Ariely has entered into some fascinating space here; the land of the quirky human mind. The book joins the genre of "popular" economics books that seek to apply economic principles to areas of human life outside of finances. These books have been fairly uniformly insightful and, dare I say, even fun. Ariely's book scores on both counts. What sets Ariely's economic offering apart from others is that it focuses in on "behavioral" economics. Most economic analysis assumes that people are well-informed and rational, Ariely makes the point that in plenty of cases, people are neither. He focuses in specifically on the irrational behaviors we humans are so prone to exhibit. As Ariely describes various experiments he's conducted, you'll find yourself smiling occasionally at harmless foibles you recognize in yourself or others and shaking your head in wonder at other times about just how strangely we're all wired. It's truly fascinating to read what Ariely has learned about things like the placebo effect in both prescription drugs and surgery. One nice bonus about the book, is that you can use the book's insights in your daily life. Perhaps you just want to learn to make better decisions on your own behalf, or maybe you'd like to use peoples' overweighting of fear to make more money investing. The insights in the book are truly practical. One point on which I don't consistently agree with Ariely is what he lables as "rational." For instance, he says it's irrational to literally get more pain relief from a $0.50 aspirin than you do from an otherwise identical $0.10 aspirin. I agree with that (but how cool, huh?) On the other hand, Ariely finishes up with an example of how people ordering food in a restaurant let the orders of others in their group alter their order and consequently end up enjoying their food less. In a country like the US that values individuality, people tend to order different items from the menu. In a country like Hong Kong that values conformity, people tend to order the same thing. Either limits peoples' enjoyment of their food. Ariely argues that's irrational. I don't think so. People are just adding a factor other than food enjoyment to their decision; in this case, social status. Ariely can argue that doesn't make sense, but his diners obviously don't agree. That's just something to think about as you read this very high quality book. I recommend it highly for anyone who is fascinated by the way people make decisions. As a bonus, it can't help but make you a better decision maker. Not a bad side benefit. Outstanding on the most important attribute: Thought-provoking Reviewers tend to evaluate a book by how much they agree with its premises or conclusions. But the impact of a book is much higher if it makes you think hard. Predictably Irrational is a book that makes you want to think and re-read it over and over and argue with it and be convinced and change your mind and... You may agree or disagree with Dan's recommendations after the experiments (though I feel inclined to agree with many); you may concoct alternative explanations for his results (until you read the academic papers backing these results and realize that Dan has already considered and shot them down); you may like or dislike Dan's choice of topics, style of writing, or other nitpicks that reviewers will bring up. But you WILL THINK! And that is the best thing you can get from a book: food for thought. If you want mental pabulum, move along, this is serious steak to chew on. Disclaimer: I am one of the fortunate people who got to work with Dan.  I enjoyed reading the book but now I think I was duped I enjoyed reading the book but now that I think about the examples and experiments discussed in the book, I find most of them to be flawed. So I wondered why I did not catch the flaws when reading the book. It was I think because Dan (the author) either cleverly manipulates the readers or is a natural at it and does not realize he is manipulating the audience. So I'll reserve personal judgement, whether his style is purposely or inadvertently manipulative. He claims to be an expert in behavioral science so perhaps the book is an experiment that he is conducting to see how people respond. So without further ado, let me begin. His very first discussion is about his personal experience with a tragic severe skin burn, which led him to question how people perceive things and how they rationalize their own behavior. In writing about his own experience he drew my sympathy and admiration him for overcoming his tragedy and delivering great research to the mass audience. Very clever, Dan! You got me. Throughout the book he mentions MIT, Harvard, Berkeley as the places where he conducts research and that he had an offer to be at Stanford - he cleverly drops names of prestigious research institutions, all in an attempt to create an impression that his work is rigorous. I sub-consciously gave him a pass while reading the book, but now I feel I was duped. Here are some flaws with the examples and/or experiments he discusses: 1) The experiment about offering to sell football tickets, won in a lottery, and about students who did not win a ticket offering to buy one from the scalpers (brokers) is completely flawed and shows that Dan does not understand basic economics. He finds it irrational and anomalous that those who won the tickets in the lottery changed their perspective and wanted, on average, $2400 for their tickets, whereas those who did not win a ticket through the lottery were willing to offer only $170 for a ticket to the football game. The reason why the ticket winners wanted $2400, on average, for their tickets was probably because that was the "going" price in the secondary (scalpers) market, just before the game. And, the reason the students who did not win the tickets in the lottery were willing to pay at most $170 or $175 (Dan reports two different numbers) is because that's all they could afford. Students don't have the wealth to offer $2400 for a ticket, which is the "going" price in the broad market comprising mostly of alums who can afford $2400, given they are in town and want to be at the game. There is therefore nothing inconsistent or anomalous about the behavior of those who won the tickets in the lottery and those who did not. You see, the amount that people bid for assets or goods depends on their BUDGET (endowment) but what they ask for an item in order to sell it is not constrained by their budget. Anyway, I think you have competent economists at your school who could give you a good evaluation of the poor research Dan is doing. He is then teaching this stuff to MIT students and to the public. So sad. 2) He suggests that perhaps our ethical compass is coarse - i.e., for most people the compass does not respond to petty theft they commit but it does respond to large scale theft they might contemplate. He gives the example that many people don't (and wouldn't) steal a carton of red pencils but do (or would) steal one pencil from the stationery room at the office. But he does not recognize that most people don't (and wouldn't) steal a pencil from a store but we do (or would) take a pencil from our workplace. So clearly the issue is not about the number of pencils but rather the context where the pencil is to be had. I believe we take a pencil (or two) from work without paying for it, in cash, but not from a shop because we have a "working" and "cordial" relationship with our employer (there's an implicit understanding that we can take certain items from the workplace) and we can compensate the firm by working a little longer. In taking small items from work avoids the transaction cost and the hassle of purchasing a 10 cent pencil at a store or compensating our employer 10 cents in cash for the cost of the pencil. The social welfare is greater by taking the pencil from work instead of forcing a transaction cost on the employer and on oneself and paying for it 10 cents. Even leaving 10 cents with the secretary entails a huge transaction cost for the firm. Therefore, it is better to just take the pencil. Moreover, the reason people don't steal an entire box of pencils is because they don't need so many pencils -- they need only one. Since most people would take a pencil from work even when the secretary or the boss is observing us, means there is no ethical ambiguity to the act. I don't think Dan has seriously thought about such issues and his research is what a high school student at a mediocre school would do. 3) The experiment about leaving coke in a fridge in a common area versus leaving $$ bills is a flawed comparison. Dan reports that people are able to rationalize stealing coke but not stealing the money (or even a $ from the stack of bills.) He denies the possibility that many people don't actually mind sharing a 6 pack of coke or beer with others in a dorm (when they leave it in a fridge) whereas the money left in a common area is clearly not for sharing (we all understand that) but there most likely because someone accidentally left it there. That's why people take a can of coke but do not take a $ from a stack of bills. There's a second reason why people take a coke but not the money. Coke quenches their thirst immediately for which there may not exist a quick, nearby substitute whereas taking a $ would not satisfy one's immediate need. Most people have some money in and taking a few bucks would not increase their utility as much as the readily available cold can of coke would for a thirsty person. Taking a few bucks from the stack does not get them a coke right away -- they would have to go to a store to buy the coke, where they could use their credit card anyway! 4) His example of unethical behavior of returning clothes, after using them, is also flawed. As long as merchants know that customers could be using clothes (and books and other items) and then returning them, the contract between the sellers and the buyers, which includes a return policy, is a market arrangement that is acceptable to the merchants. Indeed, return policy is set by merchants when they have the alternative to insist that all sales are final - as some merchants do. The returns policy has evolved over time, with cool business-minded thinking! There's nothing unethical about returning clothes or books, even if used because the merchant allows it. It seems There is an optimum for the sellers to have a return policy arrangement than without one. Some items in stores are marked as "final sale." Some stores specialize in selling items at a discount and they do not allow returns. A non-returns policy might lead to lower sales and profits and that's possibly why firms allow returns, even for expensive clothes. Bookstores, for example, encourage patrons to browse the books and magazines, while eating and drinking in their coffee lounges. The lounge environment soils their books, damages the covers, and causes bookstores to hire additional workers to pick up the books and reshelf them. Yet, they choose to offer such environments. From Dan's perspective, those buy goods, use them and decide to return the items, are cheating the merchants, and violating a social ethic. But the bookstore can observe the people who read but don't pay for the items and yet the bookstores don't complain or post rules in the lounge area reminding patrons to pay for the items they take to the coffee lounge. Moreover, merchants can institute a policy whereby returned items are charged, say, a 15% re-stocking fee - i.e., the customer would not receive the full refund - and yet most merchants choose not to institute this policy. Some tried doing so but then decided to reverse it. Circuit City comes to mind. 5) The chapter on procrastination by the students who submit their papers at the end of the term, leading to them getting poor grades, is also flawed because Dan does not control for the mindset and biases of the graders. For example, graders may grade harshly when all the papers by several students are submitted at the end of the term, which have to be graded quickly and the course grades submitted to the department secretaries, at a time when the graders (usually grad students) are exhausted. However, when the assignments are submitted periodically, over the term, graders have more time and not as many papers to grade in a short period of time and so they could be more lenient and willing to award higher grades. Also when assignments are handed earlier during the semester, students have learned less in the course and are not expected to know as much. Thus, graders could be lenient in grading papers which are submitted periodically, during the semester, versus when all (so many) are submitted at the end of the term. I could go on pointing flaws, but I think Dan does a disservice to MIT with his very sloppy research. | |||||||||||||