Predictably Irrational

Just finish reading another very interesting work, by a behavioral economist at MIT, discussing how people make decision. It is focusing on the irrational part of our decision making. Why we overeat, marry too early, driving too fast. There seems to be a reason behind every action we do (weighting the benefit over damage all the time).

We are actually very predictable, we are falling into the perceptual trap again and again. We cut off the coupon to save a penny when buying toilet paper, but waste huge amount money to buy alcohol. Belows are those interesting points Dan Ariel has discussed

How price of items is determined by a class of MIT students. Dan asked them to use the last 2 digit of their social security number as the price of the item, the prices were displayed. Later, the items were sold to the class in an auction, the prices of those items were positively correlated to the random numbers generated at the first place. We remember the first answer to a question. Anchor prices are determined in a very strange way, strangely, people are willing to pay for that. Another interesting point he brought up is that we value things we possess higher but not those we dont possess.

People are miopic, take placebo effect for example. We feel better when taking placebo and thinking that's real medication. Our bodies react to the white coat (despite the fact doctors spent 7 years in medical school, 75% of the healing comes from the way they dress??)

If given the chance to cheat and allow them never be caught, people cheat to the level they feel comfortable. For example, soft drinks were stolen but not money if left in the fridge without label. Or people change the incentive date on the option because it doesn't feel like stealing.