2015/05/17

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Predictably Irrational: Dan Ariely

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Prompt: People are making economic decisions based on logic and reason. Agree or disagree? Why? Give examples and reasons to support your opinion.

I disagree that people are making economic decisions based on logic and reason.

For example Dan Ariely in his book Predictably Irrational conducted an experiment where people were suppose to choose between 3 different purchase options. As it turned out, people prefer to compare the premade options and decide for the option that is most convenient. Thinking logically is tedious and tiring. People prefer to have limited options so their comparison is faster and easier. Given that the opportunity was restricted to a certain time and place, the only way to evaluate new offer is to compare it with one another. As Ariely proved in his experiment, comparing things that are close to each other or very similar is preferable. Relativity is more convenient than rationality.

Another example from Predictably Irrational projects that people are bound by first impression. Power of first impression and first evaluation is called anchoring. Supported by numerous experiments Ariely proved that people tend to make decisions in congruence with their first ever made purchase for the same product family. Our perception of value and willingness to pay certain amount for products is strongly influenced by our first encounter with similar product and the price that labeled it. However rational is to digress from anchored value, especially in course of time, people tend to act irrationally and conform to their initial decision.

Finally his studies and experiments suggest that value of a product or service is based on expectations and stereotypes. Satisfaction is not rationally calculated from evaluation of possible variables. Emotions and affections play the role in separating satisfaction from dissatisfaction. Present a person with choice that boosts expectation and the person will perceive their choice as more satisfying. This satisfaction is based on projected expectations and not on logic and reason. Simply by putting economic decisions into affective context influences our final call.

Inferring from mentioned examples I believe people are making most of their economic decisions impulsively and under the sentiments of relative value, first impression and expectations.

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