The MIT economist explains why we behave like idiots.
Dan Ariely is a professor of Behavioural Economics at MIT. His new book, Predictably Irrational: The Hidden Forces That Shape Our Decisions, uses dozens of experiments and studies to show that the conventional economists' view of human beings - rational agents pursuing their own interest with unflinching determination - is hopelessly simplistic: in fact, practically all the decisions we make are warped by irrationality, whether it's because we're overwhelmed by choice or because we're sexually aroused.
Dazed Digital: Presumably a lot of companies exploit these irrationalities for profit. Should we put up with this?
Dan Ariely: Actually, I don't think that companies are as smart as you think they are. I think they do use some of those tricks, but they could be more vicious than they have been. What are easier to do something about are those situations where people and companies have the same incentive – in healthcare and saving, for instance. In healthcare we never want to have to see a doctor, and the healthcare system wants us never to have a see a doctor. In savings, we want to save more money, and they want us to save more money. So there should be a way for everyone to win.
DD: For me the most chilling part of your book is the study that shows that just the thought of money can make people behave more selfishly.
DA: Money's not all bad. People do also cheat less when they're dealing with money. Money makes think about exchanges and transactions, and as a consequence we adopt a norm that is appropriate for these exchanges and transactions and abandon the social norms. And i think that's just part of the nature of money, it's not because of the spread of capitalism. But the interesting question is situations in which you might want to eliminate the use of money: learning, volunteering, reducing pollution, open source software, and so on, where they are somewhere between social norms and market norms, and where you want the pure enthusiasm that people arrive with, but you want to be able to pay people as well without them losing that enthusiasm.
DD: You describe many different kinds of irrationality in the book. Which single error could we benefit the most from correcting?
DA: The biggest problem with thinking about money is that it's very hard to think about the translation between pleasure and money. We make decisions about money all day long, and we think we're good at it. But if we say to ourselves, here's a cup of cappuccino, how much pleasure does it give in terms of money? That's very hard to think about. We usually just compare prices to what we've paid before or what other people are paying. So something can look cheap for that reason. But if we could expand the circle of comparison, so that we don't just compare milk to milk and vacations to vacations, we compare everything we buy to everything else, we could make much better decisions.
DD: What do you think is the most important debate in your field today?
DA: Certainly one of them is about the application of economics to politics. Certainly, economics shows something important. But when you come to politics, you ought to take everything you know from every single field, and work out the best policies. And the problem is that economics is dominating law-making and policy-making. Economists won't fight this because they're happy, and most of the other disciplines can't be bothered. Let's agree that economics is a beautiful perspective on life, but so is behavioural studies, sociology, philosophy, and so on. I think soon the most important debates will be happening on blogs, not in books.
Predictably Irrational is out now in hardback from HarperCollins.