predictably irrational The Hidden Forces That Shape Our Decisions Dan Ariely To my mentors, colleagues, and students— who make research exciting Contents Introduction How an Injury Led Me to Irrationality and to the Research Described Here vii Chapter 1 The Truth about Relativity Why Everything Is Relative—Even When It Shouldn’t Be 1 Chapter 2 The Fallacy of Supply and Demand Why the Price of Pearls—and Everything Else— Is Up in the Air 23 Chapter 3 The Cost of Zero Cost Why We Often Pay Too Much When We Pay Nothing 49 contents Chapter 4 The Cost of Social Norms Why We Are Happy to Do Things, but Not When We Are Paid to Do Them 67 Chapter 5 The Influence of Arousal Why Hot Is Much Hotter Than We Realize 89 Chapter 6 The Problem of Procrastination and Self-Control Why We Can’t Make Ourselves Do What We Want to Do 109 Chapter 7 The High Price of Ownership Why We Overvalue What We Have 127 Chapter 8 Keeping Doors Open Why Options Distract Us from Our Main Objective 139 Chapter 9 The Effect of Expectations Why the Mind Gets What It Expects 155 iv contents Chapter 10 The Power of Price Why a 50-Cent Aspirin Can Do What a Penny Aspirin Can’t 173 Chapter 11 The Context of Our Character, Part I Why We Are Dishonest, and What We Can Do about It 195 Chapter 12 The Context of Our Character, Part II Why Dealing with Cash Makes Us More Honest 217 Chapter 13 Beer and Free Lunches What Is Behavioral Economics, and Where Are the Free Lunches? 231 Thanks 245 List of Collaborators 249 Notes 255 Bibliography and Additional Readings 259 Index 269 About the Author Credits Cover Copyright About the Publisher v Introduction How an Injury Led Me to Irrationality and to the Research Described Here Ihave been told by many people that I have an unusual way of looking at the world. Over the last 20 years or so of my research career, it’s enabled me to have a lot of fun figuring out what really influences our decisions in daily life (as opposed to what we think, often with great confidence, influences them). Do you know why we so often promise ourselves to diet, only to have the thought vanish when the dessert cart rolls by? Do you know why we sometimes find ourselves excitedly buying things we don’t really need? Do you know why we still have a headache after taking a one-cent aspirin, but why that same headache vanishes when the aspirin costs 50 cents? Do you know why people who have been asked to recall the Ten Commandments tend to be more honest (at least im- mediately afterward) than those who haven’t? Or why honor codes actually do reduce dishonesty in the workplace? introduction By the end of this book, you’ll know the answers to these and many other questions that have implications for your personal life, for your business life, and for the way you look at the world. Understanding the answer to the question about aspirin, for example, has implications not only for your choice of drugs, but for one of the biggest issues facing our society: the cost and effectiveness of health insurance. Understanding the impact of the Ten Commandments in curbing dishonesty might help prevent the next Enron-like fraud. And under- standing the dynamics of impulsive eating has implications for every other impulsive decision in our lives—including why it’s so hard to save money for a rainy day. My goal, by the end of this book, is to help you funda- mentally rethink what makes you and the people around you tick. I hope to lead you there by presenting a wide range of scientific experiments, findings, and anecdotes that are in many cases quite amusing. Once you see how systematic cer- tain mistakes are—how we repeat them again and again—I think you will begin to learn how to avoid some of them. But before I tell you about my curious, practical, enter- taining (and in some cases even delicious) research on eating, shopping, love, money, procrastination, beer, honesty, and other areas of life, I feel it is important that I tell you about the origins of my somewhat unorthodox worldview—and therefore of this book. Tragically, my introduction to this arena started with an accident many years ago that was any- thing but amusing. On what would otherwise have been a normal Friday after- noon in the life of an eighteen-year-old Israeli, everything changed irreversibly in a matter of a few seconds. An explo- viii