Tag: Irrational Behaviour

We are irrational beings?

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Nobel laureate Herbert Simon has given the concept of “bounded rationality” which tells us that the human mind can not cope with the complexity of the world due to the limitations in their mental capacity. To make sense of this complexity, we create a simplified mental model of reality and work with this model. Obviously, the model created by us is full of biases, stereotypes and irrational views. On the same lines, the author of this book-Dan Ariely motivated by his personal tragedy of severe burns tries to understand the rationale behind irrational decisions taken by human beings who are termed as the most intelligent species of their time.

The quote “Man is not truly one, but truly two” by Dr. Jekyll tells the crux of the behavior of human beings. We always wonder after seeing various newspaper reports related to irrational crimes like teenage pregnancy, rape of children, extreme violence etc committed by sane individuals. Generally, it happens in a fit of arousal which can vary from hunger, anger, excitement, jealousy and importantly sexual arousal. This happens because human beings are not only irrational but systematically and predictably irrational. As MIT Behavioral economist Dan Ariely proved in his book through various experiments which guides us to understand irrationality in human behavior so that we can design our choices for the better decision-making process.

Dan Ariely in this book has tried to substantiate through various experiments that despite all achievements and wonders were done by human beings, we behave irrationally in our daily life because of wiring in our brains. We behave irrationally because its easy for our brain to make things clear in a complex world. He talks about relativity and tells that we don’t have ‘internal value meter’ that can evaluate the worth of any product or other emotional things also. We always compare things to understand its worth. In fact, relativity helps in the decision-making process but it also makes the life miserable because of the never-ending quest of getting physical and other emotional things in life better than others.

These ideas are very much visible in our daily life. We all experience the phenomenon of comparing with our neighbors, friends, colleagues etc. In fact, we also get suggestions from others that don’t compare yourself with others. However, we can’t stop doing this because we don’t have any other way to measure things.  Not only this, we make very crucial decisions in our life like buying things, subscribing magazines, choosing the life-partner etc with the help of relativity.

The zero-price effect creates an emotional pull for all human beings to participate in the processes which offer things for free. We automatically accept the free beer or Pepsi or energy drink not because we liked it or we needed it but because it is free. At times, the zero price can affect our decision-making process in a negative manner also as seen in terms of wastage of common resources owned by humanity.

One of the interesting findings in the book is that “we live simultaneously in two different worlds -one where social norms prevail and other where market norms make the rules”. In fact, social norms and market norms exist together in the society but whenever they collide, it creates a lot of problems. We can not measure the value of emotions and other social norms in monetary terms. When the social norms are converted into market norms, it is very difficult to go back. Here the author has given the example of a study conducted in a school in Israel where parents were penalized if they came late to pick up their children. The result was disastrous after this, as parents now didn’t feel guilty about coming late to pick up their kids, as social norms were converted into market norms.

The author also talks about the rampant consumerism, procrastination, problem of self-control, the high price of ownership not only in terms of physical products but also in terms of ideas, points of views. When we agree to one point of view, we just don’t want to change it because of the fallacy of high valuation of whatever we have. And he also proves that due to our stereotypes and expectations, we get in what we expect. The value of price is very important in our life. We lavishly enjoyed the food in a high-end restaurant even if the food is bland because we have paid more for it. That is why the author mentions that our headache disappears when we take a 50 cent aspirin but it persists when we take a penny aspirin.

At the end of the book, the author has spoken about the character of human beings and why are we dishonest? In fact, as per the author, we are honest until the moment it suits our requirements and when there is an opportunity, many honest people will cheat. It happens because small transgressions do not wake up our conscience and super-ego as propounded by Sigmund Freud, and we cheat on small things because of the absence of internal honesty monitor.

In the era of digital banking, the author provides a radical perspective that people are more prone to cheat when they are not dealing with cash. The argument here is that when we cheat under electronic transactions, we don’t feel it in our hands and therefore we don’t even realize that we are doing something wrong. In fact, it is so true that when we spend money through credit cards, we don’t feel the pinch but when we buy things through cash, we feel the pinch of spending money. In fact, this can be the reason behind various electronic frauds happening in various parts of the world. One more interesting thing about honesty revealed by the author was when we are reminded of moral values and principles, we followed it immediately.

The author also talks about our behavior to influence others and sacrifice ‘ personal utility’ to gain ‘reputational utility’. It happens because we want to show others that we are ‘unique’ and different.

However, the realization that we are predictably irrational also creates opportunities to frame our choices and influence the decision-making process of individuals to make better decisions in life. The zero-price effect can be used to frame good policies in terms of making it free to travel on public transport, using electric vehicles etc. Social norms are cheap and have a strong emotional backing which can be used to influence people to pay taxes, to take care of the elderly etc. In fact, we need to be reminded of moral codes every now and then so that our super-ego does not sleep and makes us aware whenever we try to commit any dishonesty.

In just 280 pages, the author has provided stimulating and thought-provoking details of human behavior and how human beings are systematically irrational because we repeat our behaviors again and again. This book along with “Nudge: Improving Decisions About Health, Wealth and Happiness” authored by Richard H. Thaler & Cass R. Sunstein and “The Art of Thinking Clearly” written by Rolf Dobelli provides  a holistic understanding of human behaviour, its irrationality and how to capitalise on this irrationality by using incentives, nudges, social norms, default options, providing feedback etc to improve decision-making process.