A friend several jobs ago recommended I read “Predicably Irrational” by Dan Ariely. I bought it with all the best intentions, but somehow it sat on my bookshelf for a long time. Having finally read it, I was impressed. It has some well researched and backed up lessons on human behaviour, plus an engaging style.

Here are some of the ideas that stood out for me.

Relativity (always comparing)

A lot of value judgements and decisions come from comparisons, and are hard to make without anything to compare against. This can be gamed by providing decoy options. Eg, a similar item which is a bit cheaper or more expensive. Or when dating, this could be a less attractive friend along with you.

Executive salaries increased by 3 times when they became public, as other execs demanded more. If all company salaries became public, all employees except the top few would be dissatisfied.

Choose carefully who you associate with and what you look at as you’ll be automatically comparing with them.

Also, if buying a pen for $25, and could drive 15 min to another store to save $7, most people would. But when buying a suit for $455, most would not drive 15 min to get the same suit for $448. But it’s the same $7 saving. The proportion really doesn’t matter.

Anchors

For something new, the price of the first item that you seriously consider buying will become the anchor price for all similar items. If you want to sell something new for a high price, show it surrounded by expensive and luxurious things to make it in the same luxurious class of things and command a high price. If you want to sell something that is not that new, differentiate it enough so it seems like a new class of item (eg, Starbucks) so it can be anchored with a new price.

Also, if you have made a decision once, it is easy to continue repeating it without thinking about it again.

Free

Free is magical. People will fill in lengthy forms or wait in lines for hours to get something free. Including something for free in an offer is a very powerful draw, even if it is of minimal value overall.

Social norms vs Market norms

We live in two words, one social exchanges and one market based. Gifts stay in the world of social exchanges. Any mention of money switches to market norms. Eg, you could ask your neighbour to help you move a couch and give a gift afterwards as a thank you. But giving cash would wreck the exchange. Similarly, mentioning the cost of things on a date would be disastrous. Once a relationship switches to market norms, it is very hard to go back. Companies can use social norms to their advantage to motivate employees or for customer loyalty, but need to be kind in return for it to work.

Ownership

Avoiding loss is a much stronger motivator than gain. People overvalue what they own, and don’t want to lose the benefit an item provides. It is very hard to go back once you have “upgraded”.

Beliefs

If you believe something will be good beforehand, your mind will work hard to make you enjoy it to meet your expectations (eg, fine presentation of food). Or vice versa.

Cheating / theft

Most people who consider themselves honest will still cheat / steal a little before they stop themselves (eg, taking a pen from a conference, inflating the value of an item for insurance, eating something from a shared fridge that is not theirs). Thinking about honesty beforehand (10 commandments, an oath etc) makes people more honest. It’s easy to rationalise petty dishonesty. Dealing with cash makes most people more honest (eg, taking a pencil from work is OK, but taking money from petty cash is not).