Aug 16

The Upside of Irrationality, The Unexpected Benefits of Defying Logic at Work and at Home, is the sequel to Dan Ariely’s Predictably Irrational, which I discussed in June.

I have to say, I enjoyed Dan’s first book enough that I had pretty high hopes for the sequel, and I was not disappointed. Similar to Predictably Irrational, we are walked through a series of experiments that offer a view as to how we approach certain decisions and how we are motivated.

One experiment we are offered is to try to understand the connection between payment and performance. The assumption of “pay for performance” may be more theory than reality it would seem, as one experiment which upped the ante on some simple tasks to a level of three weeks pay for only an hour’s work showed that the pressure of higher potential earnings actually decreased performance. As budgets for academic studies of this nature tend to be limited, this experiment was conducted in India, where the wages were lower than in the US.

In another example, we are introduced to the demotivation that follows work that’s discarded. For the experiment, people are paid to assemble a lego structure, one after the next. The demotivation came as for one group of builders, their structure was taken apart right in front of them. For those who saw their creation kept in tact, they worked longer and were happier doing so. This may seem ridiculous, but I’ve witnessed real life examples. Engineers whose designs were completed, on time, under budget, fully functional, yet, for whatever reason, found their project canceled. Such engineers don’t last long at companies that don’t value their work.

These two examples I offered are also discussed in an interview with NPR’s Robert Siegel in his interview with Dan Ariely, Exploring The ‘Upside Of Irrationality‘. You can listen to the interview or read the transcript, as you wish.

I’d also like to mention that Dan Ariely has a blog in which he stays pretty active, conducts experiments, and offers links to his videos. A great site to explore the topics introduced by these books.

FTC disclaimer – I borrowed this book from my library and was not compensated for this article.

Joe

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Jun 04

Earlier this week I discussed the book Predictably Irrational. I suspect the author Dan Ariely would appreciate the approach I took, using my own examples instead of just repeating anecdotes from his book. Today, being Frugal Friday, I’d like to offer one example appropriate for today. Last week, my wife, daughter and I were in the car, and I brought up the concept of anchoring, setting up a price that becomes the price in the consumer’s mind to move up or down from. I asked my daughter what she thought of an item that was $50 on sale from $100. She thought it was a great deal, ready to spend her money on it. But wait, Jane, I never even told you what the item was, do you see how silly this is? What if this was a chain saw or anything else you have no use for? Hmmm…..

Let’s see. It didn’t take long for such an item to come to my attention, not 50% off but 63%! This was one of eBay’s daily deals. I suggest you sign up, but then control yourself. Some of those deals really are great, others, not so much. One better view of what this Professional Hot Dog Griller does. (I guess I’m just an amateur)

I must admit, the machine looks great, and Waring makes products that last. When I mentioned this item to both the ladies in my life their reaction was “You didn’t buy it, did you?” There’s something about the single function items that make it tough to justify. The bread machine? Paid for itself in money saved compared to buying loaves of bread, and in the fun in trying so many different recipes. The Panini press? It was my reaction to my family dropping $20 for sandwiches I can make at home for half that with the press. What do you think? Do you buy some things just because they’re half off and then realize it still wasn’t worth it? Is your kitchen full of one trick appliances? You still use your showtime rotisserie?

Joe

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Jun 01

Predictably Irrational, The Hidden Forces That Shape Our Decisions, was published in 2008, but somehow just came to my attention recently. As with any good book, I’m sorry I hadn’t heard of it sooner, but sometimes the forces that be come together in my favor, as the author Dan Ariely has written a sequel titled The Upside of Irrationality which by coincidence, is due in stores today.

If I haven’t made it clear, I found this book to be a fascinating read. In a genre similar to Freakonomics, Dan offers a series of anecdotes and experiments which he weaves into his central premise, that people act in an irrational,  yet predictable way. I could share a number of those with you, and suggest you read the book for a more thorough analysis, but instead, allow me to share with you examples from my own life that reflect the exact phenomenon Dan described.

A few weeks back, I found myself in a store called Lush, purveyors of bath and body items and home of the $7.95 for 3.5oz bar of soap. Yes, that’s $36.34 per pound, and about 25 times my benchmark price for soap spending. This was with my 11 year old daughter, and the total, $46, was a month’s allowance or about 8 hours of time spent babysitting. The cashier looks at us and says “you get a free bar with a $50 purchase.” So, like an idiot, I tell her to grab two bars she’d like and I paid the difference. Spending $7.95 for two bars of soap made no sense, really, but as Dan described, a similar situation took place when Amazon started offering free shipping for orders over $25. You buy a $19.95 book, and see that just $5.05 more will get you free shipping, so of course, you buy another book, one you may not have really wanted or could have gotten from the library.

Next, my daughter’s aunt and grandmother had given her Starbucks gift cards during our last visit. I then observed how she used the cards over the next few weeks, treating friends to drinks, or asking if I wanted to go, offering to pick up the tab. She’s generous by nature, but it was clear to me that she was more so when it was not with her own cash. Holding a gift card in her hand made a difference in how she treated the $50 of value locked in that plastic. Dan shared similar stories of controlled experiments determining how people treat a gift card or credit card differently than cash.

Last, Dan offers an interesting discussion of social norms vs market norms. You wouldn’t approach your mother-in-law after a fine Thanksgiving meal and offer her the perceived value of the meal, that’s not quite socially acceptable. Yet, there are times when the social and business collide. I’ll offer a recent example from my family. Last year, our daughter expressed an interest in babysitting/mother’s helping. At 10, we felt she was mature enough to help out a mom so she could study for an upcoming exam while my daughter watched her little one in the next room. Worked out great. Skip ahead to this year. A mom who happens to be a close friend of ours drops her 4 year old off and we all kind of hang around the house. When she picked her up, somehow my wife tells her to keep her money. Of course, my daughter waits until our guests are gone and asks what just happened. So my wife pays her, and in turn, I ask what just happened. How did I just get stuck paying my own daughter to watch someone else’s child and more important, how do we spell out when payment is expected (by my daughter)?

After reading Predictably Irrational, I gained new insight into situations that I ran into as well as a different perspective on some just passed. I hope my own stories helped illustrate just how easily the lessons of this book can be applied you own life. In some cases, you might just understand better how you just paid $8 for a dollar’s worth of soap, other times, it might help you change the direction you might take in the decision process.

If you read it, please share your own thoughts on this great book. Are you or your friends predictably irrational too?

Joe

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