preview

Predictably Irrational By Dan Ariely

Good Essays
Open Document

I have always been fascinated by the inner workings of the mind. Why we act the way we do in certain situations and why we act irrationally. Predictably Irrational by Dan Ariely attempts to explore and answer these questions. He covers irrationality from a variety of topics such as human relationships and market dynamics, but the implications are valid in any field that requires decision-making. Two topics that Ariely covers in the book are: the “zero price effect” and the “endowment effect.” With each of these topics, Ariely challenges the reader to rethink their current decision making process and to step outside the irrational mind of the consumer. Dan Ariely states:

Although a feeling of awe at the capability of humans is clearly justified, …show more content…

According to him, zero is a source of irrational excitement called the “zero price effect” (Ariely, 2008). In this chapter, Ariely, Shampanier, and Mazar conducted an experiment using Hershey Kisses and Lindt truffles. After setting up a table in a large public area, the team offered the truffles at a price of $0.15 each, and the kisses at $0.01 each. At these prices, about 73% of subjects chose the truffle and 27% the Kiss. When each item was reduced by $0.01, so the Kiss was free, 69% of subjects chose the Kiss over the truffle. This is the “zero price effect” or the situation where the demand for a good significantly increases when the good is offered for free compared to a price slightly greater than zero. When the Kiss was offered at a price of $0.01, the consumer behaved rationally—comparing the losses and gains and determining that the Lindt truffle was better value. According to standard economic theory, people act with full information, have known preferences, and choose the best option available. Therefore, the $0.01 decrease in price should not lead to any change in behaviour from the consumer. However, Ariely observes the opposite effect with many subjects opting for the free Kiss rather than the Lindt …show more content…

“From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business, one of clawing and scratching for every customer. The psychology of "free" is powerful indeed, as any marketer will tell you” (Anderson, 2008). Ariely is aware of the power of free and offers suggestions to policy makers. For example, governments attempt to persuade the population to receive regular health checks; in some cases running large advertising campaigns and reducing the price of the health check. Ariely suggests that instead of spending money on campaigns around creating awareness, put the money towards making the health check free (Ariely, 2008). While this may not apply to a country with free health care, the same general takeaway is still relevant: free is an emotional button that can change a rational consumer into an irrational

Get Access