Book: Predictably Irrational by Dan Ariely

Very interesting book on behavioral economics

Dan Ariely
Predictably Irrational: The Hidden Forces That Shape Our Decisions
Harper, 2008
ISBN: 978-0-06-135323-9
247 pages

Predictably Irrational is a book in the newish field of behavioral economics. What's behavioral economics? Traditionally, when economists want to know how someone will act, they use a rational actor model. That's a fancy way of saying that they assume that people will act rationally to maximize their utility. (Utility is a fancy way of saying, roughly, medium-term happiness.)

But everyone knows that people aren't perfectly rational. The rational actor model treats irrationality as an aberration that will averaged out or corrected. Behavioral economics seeks to see what useful or interesting things can be found out about people's irrational actions. As it turns out, very often when people are irrational, they're not irrational in random ways. And the ways in which people are predictably irrational can be very interesting.

Predictably Irrational lives up to its title. In it, Dan Ariely, a professor of behavioral economics at Duke University, discusses eleven broad themes of human irrationality that he has investigated. Professor Ariely's work is very persuasive and one reason for that is that it's relentlessly empirical. Indeed, Professor Ariely describes so many experiments that he and his colleagues have conducted that it seems that anyone in the same city that he is would constantly observe armies of clipboard-toting graduate students asking people seemingly-odd questions.

Among the themes that Professor Ariely investigates are: the relativity of value, prices that are unrelated to supply and demand, the relationship between economic norms of behavior and social ones, and the difficulty people have predicting how they will react when under the influence of strong emotions. All of the themes are worthy subjects and Professor Ariely has interesting things to say about each of them. Each theme is addressed in a separate chapter (actually, honesty gets two). In each of those chapters Professor Ariely gives some background on the subject, describes the research he has done and what it suggests, and finally gives some suggestions about how people might modify situations so that they acted more rationally in the future.

If that doesn't sound much like a traditional economics book, that's because Predictably Irrational isn't much like a traditional book on economics. For one, prosperity is a secondary issue. We might be more prosperous if we were more rational, but human behavior is the focus here. The book reads more like one written by Steven Pinker than one written by an economist. That comparison is an apt one in another respect as well: Professor Ariely comes off as a friendly and engaging narrator. (At one point in the book, he wonders why people confide in him so often. If he is in person anything like the sort of person he is as a narrator, I expect it's at least partly because he's a very friendly person.)

A few of the sections are slightly repetitive, but that's a very small complaint. Some of the suggestions for ways to arrange to act more rationally seem a trifle impractical to me. And the final chapter, which is in part a discussion about how institutions might go about creating situations that encourage rationality troubles my libertarian soul just a bit. It sounds as if it could be the start of a slippery slope in which people helpfully encourage me to do what they have decided I "really" want.

Though Professor Ariely (and others) have persuasively shown that people are sometimes irrational in predictable ways, we're still pretty far from having a useful and coherent "irrational actor" model. I doubt that anyone has a very good idea how or when behavioral economics will connect with the more ordinary kind. If it ever does, the result would be a powerful tool of analysis. Until then, enjoy this short (247 pages of largish type somewhat loosely set), fun and interesting inquiry into human nature.

There's minor editing error in that "high density" should be "high definition" on page 135. And whoever is responsible for the author's capsule bio on the inside of the dust-jacket wrote "Institute for Advance Study". It's actually the Institute for Advanced Study.

Posted: Wed - December 17, 2008 at 07:30 PM   Main   Category: