This was a pretty interesting book, interesting enough to finish, but maybe not so much that I read it to the exclusion of all else. Regardless, I learned some cool things about how irrational we all are. Things like the effect of a thing's price on our decision to buy it or determine its effectiveness... the influence of arousal on decision-making (careful there!)... overvaluing possessions... the effect of expectations... and our propensity to cheat when the option is available to us. The author details many little experiments that he and his colleagues used to bolster his conclusions and I was amused at how many of them involved beer in some fashion. Clearly he's a smart man. ( )

In the past decade or so Behavioural Economics has become all the rage in both academic circles and among the general public. The financial crisis that started with the bursting of the sub-prime mortgage bubble in the US a couple of years ago has given behavioural economists a major boost.

The basic premise of behavioural economists is that humans are not necessarily rational when they make economic or financial decisions. One of the cornerstone assumptions of “traditional” economics is that we decide based on rational analysis of costs and benefits and seek to maximise our financial gains. It turns out this is not the case and many of our decisions are driven by “irrational” factors that defy the premises of traditional economics.

Professor Dan Ariely is another ex-Israeli scientist that has popularised Behavioral Economics with his book Predictably Irrational. Using relatively simple experiments he shows that many of our decisions are influenced by irrational factors, but more importantly, that this irrational behaviour is, in many cases, predictable. In other words, contrary to popular belief (at least in the last 300 or so years of the “scientific era”), humans are inherently irrational.

Here are a few examples:

- People will feel better taking a medicine that costs 10 times as much as another, identical, medicine.
- When faced with a free product, we will likely “buy” it even if they don’t need it.
- Sexual arousal will lead people to change their behaviour and perform deeds they deem immoral.
- We will think food or drink are better if they are presented in a more glamorous setting.

Ariely’s book is highly entertaining and provides some delightful nuggets of truth about ourselves. But I didn’t find many of his “discoveries” surprising. It is true that we like to see ourselves as rational machines, but most of our life experiences clearly demonstrate this is not the case. Blind belief in a purely rational brain is, well, irrational. The work of Nobel prize winner Daniel Kahenman (with his partner Amos Tversky), around how people decide between alternatives involving risk, has been known for many years. Ariely’s achievement is mainly in popularising the subject and presenting it in a way that most people can understand. ( )

Ariely is interested in understanding how we actually make our decisions; he shows that
certainly the standard economic model does not apply. The ideas introduced are important
and interesting. The book is written in a light and engaging style, which is both a blessing
and a curse. On the one hand, it's an easy read; on the other, I am confident that the key ideas
could have been expressed eloquently in 50 pages, rather than 250. ( )

http://www.book-blog.com/2009/10/arie... ( )

Predictably Irrational belongs to the category of books such as Nudge by Thaler and Sunstein, and Bounded rationality: The adaptive toolbox by Gigerenzer. You'll find similar examples in the books by those authors and maybe in more detail so why another book on a similar subject? Maybe it is because Dan Ariely concentrated on behavioral economics after a very critical and painful personal experience. Or maybe because he is the professor from MIT with a very keen sense of humour when it comes to explaining his examples. Or can it be because he generally relates different modes of 'irrationality' to his life, too?

If you haven't read any book from Gigerenzer, Thaler, Sunstein, etc. then Predictably Irrational may be a very good start to understand what this behavioral economics stuff is all about. I guess living afer (or in the middle of) a global economic crisis gives people opportunities to question the assumptions that they didn't even realize they held. This may be one of the reasons why these kind of books and research became very popular.

So if you want a good and non-academic headstart in behavioral economics this book is fine as a first choice. If you want to learn and understand more about the field please invest some time in Gigerenzer's, Kahneman's and Tversky's work, too.

Your reward will be a much better understanding of human nature and you'll be much more suspicious of classical economic theories, rational agent based assumptions and the 'virtues' of free markets. ( )