“Everything is Relative” — Lessons on Decision Making from Dan Ariely’s “Predictably Irrational”

In his 2008 book “Predictably Irrational,” Dan Ariely opens our eyes to our decision making process and how it can be used against us.

Everything is Relative.

Our choices are made in comparison to other options, and what we might lose or gain with these decisions. Unfortunately, all too often we don’t know the value of those options at all! For example, do you really know the price and quality of one television set over another?

If given a set of options, Ariely lays out the predictable choices in each:

• Three television sets: we don’t know enough about the differences to chance the higher-end or lower-end price points. We tend to choose the middle option as a safe bet.
• Decoy option, where the middle-priced option is similar in price to the higher-end option, and the higher-end option has substantial benefits. I see this often with music releases on CD or LP. The LP alone is the lowest price. The bands will add stickers for the mid-priced option, and bundle a tshirt to the most expensive choice for only a few dollars more. Without this middle-option decoy, many more people will chose the lowest-priced option. In fact, without the decoy, Ariely states more than 4 times as many people will pick the lowest priced option!
• Another decoy can be based on similar items. We’re reluctant to spend $15 on a book that could provide days of entertainment, because what if it’s not good? What if we wasted that $15? But we know lunch at one restaurant is good and another isn’t so great. If you had $15 to spend and you could grab a new book , a mediocre lunch, or a good lunch, our brains know how to compare the lunch options. The book is out. It’s extremely likely we’d pick the better lunch option to spend that $15.

Ariely’s book “Predictably Irrational” is filled with research relevant to marketing, product design, and decision making.

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