Dan Arieli is one of the leading modern specialists in the field of behavioral economics. He currently teaches at Duke University of America and is also the founder of his own research center. Using simple experiments, Arieli was able to study how people actually behave in the market and how they would behave if they were guided by rational principles. His work will be useful to anyone interested in behavioral economics.
Book Features
In his Predictable Irrationality, he challenges the rationality of the buyer as the fundamental concept of a modern market economy. And many consider Ariel’s views to be unusual. In his book, he writes about what actually affects the everyday decisions of a person. For example, every day we can give ourselves a promise to go on a diet, but instantly forget about it when a delicious cake appears in front of our eyes.
The irrationality of consumer behavior
Often people buy those things that subsequently are completely useless to them. And having taken one tablet of aspirin for five rubles, you can continue to complain of a headache that, for some mysterious reason, will pass after using the tablet for fifty rubles. The reasons for this consumer behavior are described in Predictable Irrationality.
The influence of the "anchor" price
Often, the buyer is psychologically attached to the price that he paid for the product or service initially. She turns into his "anchor". But is the client able to constantly jump from one price to another, constantly changing willingness to pay this or that amount of money? For this, Arieli conducted a series of experiments, which are described in his work “Predictable Irrationality”. The results of these experiments showed that the first decisions of the buyer affect many of his next steps.
He may remember that the first phone he purchased is much more expensive than more modern models. Therefore, it seems to him that the current prices have become relatively more profitable. Conversely, the buyer does not forget that once gasoline was much cheaper. And this fact makes every car trip painful, writes Arieli in his book Predictable Irrationality.
The change of "anchors"
Some “anchors” can be replaced with others. For example, a customer visits an economy class coffeehouse for a long time. But one day he accidentally enters a more expensive institution - the Starbucks coffee shop. He likes coffee in this place, service and pleasant atmosphere. He sees fragrant donuts, inhales the smell of expensive coffee. The impressions that he receives from visiting this institution make him visit Starbucks again and again. And now he no longer thinks that he could save a considerable amount if he visited a cheaper coffee shop or even drank coffee, while already in the office.
The classical market model is based on the assumption that two main forces interact in the market. This interaction leads to the formation of the final market price. But the results of the experiments described in Predictable Irrationality question this concept. Indeed, in fact, the desire of the consumer is very easy to manipulate. And this means that the buyer is not able to control either his own preferences, or his desire to pay a certain price for a particular product.
But if the buyer's choice is often determined by the initial “anchor”, then the transactions that he subsequently concludes may not always reflect the degree of pleasure or the usefulness that he receives from a particular product. And if it is impossible to objectively calculate the value of utility (instead, arbitrary price “anchors” are used), then it is not clear how useful this or that thing will be for the buyer.
For example, due to incorrect initial "anchors", a person can exchange something that brings him true benefit or pleasure, for something else, even less pleasant, but more expensive.
The attractiveness of free
In his work, “Predictable Irrationality: The Hidden Powers That Define Our Decisions,” Arieli writes about yet another trap that the consumer invariably falls into - the attractiveness of the free.
Most transactions have both advantages and disadvantages. But if a person is offered something free, he can completely forget about the minuses. Free bonuses are a special type of customer motivation that makes the seller’s offer more valuable than it actually is.
Why it happens? People always fear loss. And the real attraction of free is directly related to this fear. When a client sees something for free, then he does not see obvious opportunities to lose something. If he chooses a paid option, the possibility of loss automatically arises. And if the buyer has a choice, then he will prefer a free product than a better one, but at a discount.
Book Reviews
You can find different reviews about the book of D. Arieli "Predictable Irrationality." Many readers note that it contains a lot of unnecessary information, “water”. The topic itself is a behavioral housekeeper of interest, but the book is too long. It has many repetitions. The author is constantly moving away from the topic. Readers also write that the book contains too many descriptions of experiments.
Other readers write that the book cannot be called truly fascinating. She leaves the impression that the author wanted to write a little and about everything.
Still others write that they liked Dan Arieli's Predictable Irrationality book. It helps to refresh existing knowledge in the economic sphere. Ariel’s experiments show that a person is not guided by logic in making such important decisions as the distribution of his income and the purchase of vital things. The book seems interesting to them from a practical point of view. In particular, according to such readers, this book will be useful to those working in the field of sales or dealing with investors.