Predictably Irrational Chapters 9 & 10 – The Effect Of Expectation & The Power Of Price

In Chapter 9 and 10 (I combined them as they’re quite similar) of “Predictably Irrational” by Dan Ariely, the concept of how are expectations affect our decision making is discussed. We are not rational actors making choices in a vacuum but rather we are deeply affected by our expectations. If we expect a movie to be good, then it often is. This placebo effect is always to be found with prices. If we pay more for something, we value it more and get more from it. This creates serious problems for those who claim that market distortions will be corrected by market forces pushing a return to equilibrium. Ariely conducted an experiment involving free beer (I knew that would get … Continue reading “Predictably Irrational Chapters 9 & 10 – The Effect Of Expectation & The Power Of Price”

January 18, 2013EconomicsBehavioural Economics, Books, Economic Theory, Economics, Economy, Free Market, Libertarian, Predictably Irrational Leave a comment

Predictably Irrational Chapter 3 – The Cost Of Zero Cost

To a neo-classical economist zero is just another price. To the average consumer it brings the magical connotations of free. We are always trying to get something for nothing so if something is free then consumers impulsively take the option. Ariely shows how this impulse comes with hidden costs that debunk the myth of rational consumers. Whether it’s from eating too much free food or accumulating worthless free pens, clickers etc, people are always trying to get a free lunch. As usual (this is what is so great about the book) Ariely did an experiment to find the answer (neo-classical economists take note). He set up a stall with offering (one per customer) two piles of chocolates, the first being … Continue reading “Predictably Irrational Chapter 3 – The Cost Of Zero Cost”

January 14, 2013EconomicsBehavioural Economics, Books, Economics, Free, Predictably Irrational, Review, Zero Cost Leave a comment

Predictably Irrational Chapter 1 – The Truth About Relativity

Predictably Irrational by Dan Ariely is a fascinating and deeply insightful book that is a pleasure to read and full of gems. It is bursting with interesting and ground breaking experiments that completely debunk many of the assumptions of economics. It will reshape how you view economics and how consumers react in real life, as opposed to in economics textbooks. It is a book I would highly recommend and should be considered a behavioural economics classic. In fact it’s so great that I couldn’t fit all I wanted to say about it into one post (or three) so instead I will summarise my favourite chapters (which is most of them) and highlight the important points they make. What is particularly interesting is … Continue reading “Predictably Irrational Chapter 1 – The Truth About Relativity”

January 11, 2013EconomicsBehavioural Economics, Books, Chapter 1, Chapter by Chapter, Choice, decision, Economic Theory, Economics, Free Market, Neo-Classical, Predictably Irrational, Summary Leave a comment