19 February 2009

Predictably Irrational: The Hidden Forces That Shape Our Decisions

We like to think that we make decisions logically and rationally. This is one of the assumptions that underlies much of economics, public policy, and modern life. We just assume that people can determine what is best for themselves and that they act accordingly. Things operate this way even though we are all well aware that no one is perfect. We all make mistakes and suboptimal decisions.

In Predictably Irrational, MIT economist Dan Ariely argues that these deviations from rationality are not just random mistakes. We systematically make the same kinds of cognitive mistakes, day after day, even after the error of our ways is pointed out to us.

Ariely cites a number of psychological studies (most of which he designed or co-designed) and generalizes from them to shed light on various classes of irrational behavior or cognitive failings. (Just one example: people know they will procrastinate, but they systematically underestimate the extent to which they will do it.) And he reflects on the implications for our lives and for public policy. The book is a quick read and is pretty entertaining, and I recommend it. There are quite a few laugh-out-loud moments, mostly while Ariely describes his clever experimental setups, many of them involving unwitting MIT undergraduates.

Psychology fascinates me because for all the talk about people all being different, there are so many ways in which people are all the same. And being able to learn about itself may be one of the most amazing feats of the human mind. But there is something about the idea of "predictable irrationality" that is really sobering. We often imagine that, as human beings, our intelligence and our capacity for introspection could allow us to transcend all— once we have identified a problem we can learn from it and take steps to prevent it from happening again. That is one of the things that makes me (and many others, I imagine) so optimistic about the future. But as it turns out, there is such a thing as "human nature" and we're shackled to it, no matter how willing and observant we are. We make the same mistakes over and over again. As it turns out, we all have the same weaknesses, the same frailties.

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