BUSA 100
3 February 2014
Review of Predictably Irrational
Are we rational, as most economists claim, in our daily monetary transactions? Do we truly understand and carefully evaluate the real value before every economic decision? As the book titled: Predictably Irrational, the author, Dan Ariely, argues that people’s economic behaviors are rather irrational, yet predictable through psychological explanation. He experienced third-degree burns when he was a teenager. The treatment for this unfortunate event took up much of his social life in the next three years, and eventually made him feel “partially separated from society and as a consequence started to observe the very activities that were once my daily routine as if I were an outsider” (Ariely, 2008, p. xiii). Ariely is now a successful behavioral economist with doctorate degrees in psychology and business administration. He now shares his knowledge through his book, Predictably Irrational, in which he discusses people’s economic behaviors in psychological terms and reminds us our weaknesses, moreover, provides advices to prevent our future irrational decisions. Ariely started out by introducing the fact that many of our decisions are dependent upon comparisons because “we don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly” (Ariely, 2008, p. 2). Everything is in the term of relativity: is your salary high? Is your car good enough? We are always looking at things around us in relation to others (Ariely, 2008, p. 7). He then claims that people value things base on anchoring, which is the first price or number we see, and it will influence the decision of the price that we are willing to pay later on. Also, he shows us how prices can change significantly when people are viewing the situation on a different perspective as opposite roles. When we own something,
Cited: Ariely, Dan. Predictably Irrational: The Hidden Forces That Shape Our Decisions. New York, NY: HarperCollins, 2008. Print.