Biased Review 02 — “Predictably Irrational”
Book review of “Predictably Irrational: The Hidden Forces That Shape Our Decisions”, by Dan Ariely
This is a book which I was familiar with but never actually read. Its main goal is to highlight that perhaps humans are not that rational after all. This is a big deal, since the cornerstone of economics assumes rationality in decision making. Such school of thought, that conventional economic decision-making analysis is limited for relying exclusively on rationality, is called Behavioral Economics. Several researchers have collaborated to this idea, such as Daniel Kahneman, Richard Thaler, Nobel Laureates for the 2002 and 2017 awards respectively, and Dan Ariely. Ariely is arguably the most famous in the mainstream, at least from my perspective, for his work in Ted Talks and showcasing Behavioral Economics ideas in a simple and entertaining way — such as in Predictably Irrational. It does not expand too much on any of the examples of “predictable irrationality” it approaches, because it does not need to. Predictably Irrational’s proposal is to only break the ice on Behavioral Economics.
Out of all concepts the book approaches, the most relatable one to me is the idea of self control. Disclaimer: in 2019 I took a class on Behavioral Economics, so I’ll be borrowing some vocabulary and data I learned in there. In a nutshell, people are bad at predicting their state of mind in the future — this phenomenon is called “Projection Bias”, where the projection happens not from us to other people, but from us to our future selves. Imagine, for example, when you go grocery shopping when you are hungry versus when you just had lunch. In both instances you are trying to predict how much you will eat in the future, but your current desire for food may skew that prediction. For the sake of simplicity, we can say there are two types of people. Type 1 believes they are rational, which implies their preferences remain the same as the time goes on. Type 2 acknowledges their own irrationality and that their preferences will change with time and depending on their context (being hungry vs being satiated). Another explanation for that is that people tend to weight their utility/happiness more heavily in the present. With this, we may choose to do things that maximize our utility now but undermines our utility in the future, such as eating too much fast food, smoking, or binge watching cat videos on Youtube at 1am on a weekday. Therefore, Type 2 can equip themselves with “commitment devices” in order to force their current preferences onto their future selves and maximize their utility in the future. This is mostly common with unpleasant tasks we know we need to do in the future, but when the time comes we will try to procrastinate. A big one for me, for example, is waking up early. Recently I found an app called “Sleep As Android” that helps set such commitment devices for when it is early in the morning and all I want is 5 more minutes in bed in exchange for my right arm. With it I am able to set a max snooze time, having to do tasks or puzzles to turn off the alarm, and even prevent myself from turning off my cell phone before I can stop the alarm. This way present Andre can help future Andre make smarter and better decisions.
For me, the key is not to strive towards being 100% rational in our decisions — or even worse, treat it as if we are already being rational. As the saying goes, the first step to solving a problem is acknowledging we have a problem. The more we acknowledge our own irrationality, the more we can create mechanisms to live with it and achieve our goals.
