I just read a fascinating book called Predictably Irrational by Alfred P. Sloan Professor of Behavioral Economics at MIT, Dan Ariely. He explores the idea that our irrationality happens the same way again and again. He performs several experiments and examines the way we make decisions, coming up with some interesting findings.
Ariely begins the first chapter by discussing relativity:
There’s one aspect of relativity that trips us up. It’s this: we not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable and avoid comparing things that cannot be compared easily.
He writes that evaluating two houses side by side yields different results than evaluating three: A, B, and a somewhat less appealing version of A. The subpar A makes it easier to decide that A is better–not only better than the similar one, but better than B. The lesser version of A should have no effect on your rating of the other two buildings, but it does.
Most people don’t know what they want unless they see it in context. Ariely performed an experiment at MIT in which he selected pairs of photos of random people: one of them physically attractive (A), and the other one noticeably less so (B) in each pair. He then doctored the photo in Photoshop, creating a slightly but noticeably less attractive version of each of them–a decoy (-A and -B). He then approached students, presenting them with three pictures. Some of them had the regular picture (A), the decoy of that picture (-A), and the other regular picture (B). Others had the regular picture (B), the decoy of that picture (-B), and the other regular picture (A).
Whenever I handed out a sheet that had a regular picture, its inferior version, and another regular picture, the participants preferred the regular person–the one who was similar, but clearly superior, to its distorted version over the other, undistorted person on the sheet. This was not just a close call; it happened 75 percent of the time.
Humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.
Read the rest of this entry »