THE TRUTH ABOUT RELATIVITY 01Why everything is relative – even when it shouldn’t be
• Most people don’t know what they
want until they see it in context
• We only compare things that are easily
comparable
• Often a decoy is employed, tricking
people into the ‘easy’ choice
THE FALLACY OF SUPPLY AND DEMAND 02Why the price of pearls - and everything else - is up in the air
• Our first impressions (of price/product)
are imprinted in our minds and
become an anchor
• This anchor affects future decisions
about what we are willing to pay
• ‘Arbitrary coherence’ decrees that
although initial prices can be
"arbitrary," once those prices are
established in our minds, they will
shape not only present prices but also
future ones (thus making them
"coherent")
THE COST OF ZERO 03Why we often pay too much when we pay nothing
• Zero is a source of irrational
excitement
• Most transactions have an up side and
a down side, when something is free
we forget the downside
• Think quickly: Would you pick a $10
voucher for free or a $20 voucher for
$7. Most people opt for the free
voucher rather than the voucher that
would give them 3 extra dollars
THE COST OF SOCIAL NORMS 04Why we are happy to do things, but not when we are paid to do them
• Social norms e.g. Opening a door for
someone or helping a friend move
house vs Market norms - payments
• Lawyers asked to work for $30 an hour
for needy retirees refused, comparing
the $30 to their market salary.
However, they were willing to offer
their services for free
• When on a date, never mention the
price of the food; even though it is
explicitly printed
THE INFLUENCE OF AROUSAL 05Why hot is much hotter than we realise
• Men were sought out and asked
questions about sexual and moral
decisions, these questions were then
asked to them again in a high state of
arousal
• The magnitude of underprediction by
the participants was substantial, we
are unable to predict the ways in
which our emotions can take control
of our behaviour
• It is this concept of having two sides
to ourselves that inspired Dr Jekyll
and Mr Hyde
THE PROBLEM OF PROCRASTINATION AND SELF-CONTROL 06Why we can’t make ourselves do what we want to do
• Americans are not only not saving but
are spending more than they earn, the
average American family now has six
credit cards
• As with losing weight, we lose the
battle to save, procrastinating instead
• Students who were allowed to set their
own deadlines for submitting
coursework tended to do better when
they spaced the timings, realising their
tendency to procrastinate
THE HIGH PRICE OF OWNERSHIP 07Why we overvalue what we have
• Much of our life story can be told by
describing the ebb and flow of our
particular possessions
• We fall in love with what we already
have, we focus on what we may lose
and we assume other people will see
the transaction from the same
perspective as we do
• Another peculiarity is that we begin to
feel ownership even before we own
something e.g. eBay
KEEPING DOORS OPEN 08Why options distract us from our main objective
• We cannot stand the idea of closing
doors on our alternatives
• In each case we give something up for
the sake of having these options
• Given a simple set up and clear goal,
all of us are quite adept at pursuing
the source of our satisfaction
THE EFFECT OF EXPECTATIONS 09Why the mind gets what it expects
• When we believe beforehand that
something will be good, generally it
will be good - and when we think it will
be bad, it will be bad
• To look at whether these influences
just change our beliefs or our
physiology as well, Ariely brewed two
beers, one with vinegar, one without.
• The students who were told about the
vinegar after drinking the beer liked it
a lot more than those told first, just as
much as those who were not told at all
THE POWER OF PRICE 10Why a 50-cent aspirin can do what a penny aspirin can’t
• In general, two mechanisms shape the
expectations that make placebos work;
belief and conditioning e.g. Pavlov’s
dogs
• On the basis of price alone it is easy to
imagine that a $4000 couch will be
more comfortable than a $400 couch
• Marketers rely on perceived value but
this can become real value if the
customer is getting more satisfaction
from the promoted product
THE CONTEXT OF OUR CHARACTER, PART I 11Why we are dishonest, and what we can do about it
• Decisions about honesty and
dishonesty relate to the size of the
transgression
• People cheat when they have the
chance to do so but they don’t cheat
as much as they could
• Once they begin thinking about
honesty they stop cheating completely
THE CONTEXT OF OUR CHARACTER, PART II 12Why dealing with cash makes us more honest
• Cheating is a lot easier when it's a step
removed from money
• Stealing a Coke vs stealing 1 dollar
• What do we do now that cash is
disappearing?
BEER AND FREE LUNCHES 13What is behavioural economics, and where are the free lunches?
• When people in a bar or restaurant
order out loud in sequence, they choose
differently from what they order in
private, opting for variety and are
generally less happy with their choice
• The first person to order in the
sequential group was the happiest in
the group
• Standard economics assumes that we
are rational; making logical, sensible
decisions. In fact we are far less rational
and our irrational behaviours are
systematic and predictable