For much of the past ten years, I’ve been fascinated, both from a personal and professional standpoint, with the subject of behavioral economics.

I hold both an undergraduate and master’s degree[1] in economics, which for much of its history was focused on how humans should behave when acting in their own self-interest, not how they do behave.

And humans do not behave rationally. That’s not to say we’re dumb. Rather, it’s to say we aren’t robots governed by strict mathematical rules and algorithms. We’re wired to be emotional, caring, and unfortunately, easily manipulated by stimuli in our environment.

That’s why I think that it’s never been more important for the typical human to have a basic awareness of just how vulnerable we are to manipulation via our senses. By understanding how easily tricked you are, you can perhaps begin to constructively trick yourself.

Dan Ariely’s book Predictably Irrational (Amazon) is a good place to start. My only criticism of Ariely’s book is that it comes across a bit “patchwork.” The book reads more like a stapled-together set of concise pamphlets on behavioral economics topics.

But within each chapter, there are many good things. So to stay on the patchwork theme, and because I hate writing formal book reviews, here are three things that struck me as particularly important.

1. Delaying gratification

It’s a subject near and dear to my heart:

In order to overcome many types of human fallibility, I believe it’s useful to look for tricks that match immediate, powerful, and positive reinforcements with the not-so-pleasant steps we have to take toward our long-term objectives.

Ariely was a burn victim and shares a number of personal examples of how he pushed through unimaginable pain and discomfort on his path to healing.

2. Anchoring bias

Anchoring bias is perhaps the single most practical topic in the book:

Consider this: if I asked you for the last two digits of your social security number (mine are 79), then asked you whether you would pay this number in dollars (for me this would be $ 79) for a particular bottle of Côtes du Rhône 1998, would the mere suggestion of that number influence how much you would be willing to spend on wine? Sounds preposterous, doesn’t it? Well, wait until you see what happened to a group of MBA students at MIT a few years ago.

3. On keeping doors open and dying donkeys

The inability to close doors (of opportunity) is a major modern challenge, I think. From companies that can’t bring themselves to focus on one or two product lines to individuals that can’t say “no,” everyone should read Chapter 9:

Running from door to door is a strange enough human activity. But even stranger is our compulsion to chase after doors of little worth—opportunities that are nearly dead, or that hold little interest for us.

And even when we work hard to whittle our doors down to two…

A hungry donkey approaches a barn one day looking for hay and discovers two haystacks of identical size at the two opposite sides of the barn. The donkey stands in the middle of the barn between the two haystacks, not knowing which to select. Hours go by, but he still can’t make up his mind. Unable to decide, the donkey eventually dies of starvation. This story is hypothetical, of course, and casts unfair aspersions on the intelligence of donkeys. A better example might be the U.S. Congress.

The upshot:

What [the donkey and Congress] failed to do when focusing on the similarities and minor differences between two things was to take into account the consequences of not deciding.

  1. I would have gone farther, but I spotted a new shiny object called actuarial exams. I never looked back.  ↩