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Predictably Irrational

Predictably Irrational
by Dan Ariely

So it turns out that the invisible hand of the marketplace is palsied, weak, and apparently attached to a kleptomaniac.

That is the inevitable conclusion one must draw from Predictably Irrational, Professor Dan Ariely's light treatise on how we among the consuming public act as purchasers, choosers, and in some cases outright liars. In a light and breezy tone that makes for easy reading, Ariely serves up a succession of arguments about the nature of human beings as economic animals--backed up by examples from his own research experiments--all of which point to the same idea: that we do not always make the correct, rational choices in life circumstances both large and small. Instead, we carry with us biases that frequently thwart our best efforts to make the right choice, in situations as trivial as buying a piece of candy to those as momentous as deciding what house to buy or what career to follow.

Through his work and experiments, Ariely demonstrates that not only are we irrational choice-makers, but (as the book's title suggests) that we are predictably so--that there is, in fact, little mystery in the frequency with which we make our unwise decisions. All one needs is to know how to read the characteristic elements of any given situation--particularly commercial transactions; i.e., anything involving money--to make a safe bet on which way the typical person will go when making his choices. Such is the author's argument, and Ariely makes the case that, with a little self-awareness and a little more careful examination of the pieces in play, we can train ourselves to make better choices.

Such is the implications of Ariely's argument for our personal outcomes. More intriguing, from a broader perspective, is the implication of his work for the larger political sphere. In short, Ariely's demonstrations of our irrationality as economic actors strongly refutes the current received wisdom, touted so often by the Very Serious Persons, that market forces are always right, that Adam Smith's famed "invisible hand" will correct all economic mistakes and guide the world to better outcomes for all. The pundits' oft-invoked credo, that we must "let the market decide" what's best for our economy and politics, relies on a foundational concept that just isn't true. Ariely himself touches on this idea in his conclusion:

Standard economics assumes that we are rational--that we know all the pertinent information about our decisions, that we can calculate the value of the different options we face, and that we are cognitively unhindered in weighing the ramifications of each potential choice...wouldn't it make sense to modify standard economics and move away from naive psychology, which often fails the tests of reason, introspection, and--most important--empirical scrutiny? Wouldn't economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?

Those questions ring loudly in the ears of anyone who has witnessed the conservative free-market mania that has enveloped much of the world in the last thirty years. We are living amid the debris scattered about by what has been, at best, an unswerving faith in the rational decision making of actors in free markets. (At worst, it's been little more than a cynical swindle, but that's another story.) Ariely's experiments--particularly those focused on the common human impulse to cheat for personal profit--put the lie to that misplaced faith. We can only hope that some policymakers pick up Predictably Irrational and learn not to listen the next time some think tank pundit tells them to let the market decide what's best for the country.

For our own part, we as individuals can read Ariely's book and try to make ourselves more aware of the biases we bring to the table in all walks of life, Maybe, if we keep Predictably Irrational in mind, we can all make better choices and come out ahead for ourselves, if not our society and our world.