PREDICTABLY IRRATIONAL


As I particularly enjoy being pointed out my own irrational decisions - this book was fun. It provided new frameworks I think will help with my view of the world and my own thought processes: anchors (in my feelings towards prices and preferences); herding ourselves and others (kind of like habit reinforcing); the power of 0 (irrational bias towards 0-priced goods); markets vs social norms (perhaps one of the most valuable for me) and refreshed older concepts: decoys, cycles of relativity, stereotypes and placebo.

Actionable Takeaways From This Book:

  • Removing multiple bandages slowly is less painful than fast

  • Use decoys (similar enough but slightly worse) to make options (or yourself) more attractive

  • The more we have, the more we want, and the only cure is to break the cycle of relativity

  • You might be herding yourself (or others) in your actions and creating habits - question this

  • Pay attention to your own anchors to rid yourself of them

  • Rules break down at £0, you are probably acting irrationally when something is offered free: ask yourself if you would pay a small amount for it

  • You can either exist in market norms or social norms, not both. Switching between the two is dangerous and damaging

  • You work most efficiently by having strict imposed deadlines (not sure about the creativity there though). The second best thing is to self-impose strict deadlines

  • We are terrible at letting go of inviable options - being aware of this would help with decision making

  • We are all tempted to be dishonest, even where there is no chance of being caught, however, we don't become wildly so. Having monetary gain be one step away from cheating greatly increases the chances of dishonesty (white collar crime): a way to minimise this is oaths beforehand

  • Always order first at a restaurant, otherwise you may avoid your favourite option to pick something different and end up less satisfied

  • It is easier to sacrifice consumption in the future for a reward in the future, so make future plans with consequences to stick to seeing them through (pay fro gym classes beforehand)

*On questioning the rationality of our decisions*

Given these kinds of responses, I am often left scratching my head, wondering why so many smart people are convinced that irrationality disappears when it comes to important decisions about money. Why do they assume that institutions, competition, and market mechanisms can inoculate us against mistakes? If competition was sufficient to overcome irrationality, wouldn't that eliminate brawls in sporting competitions, or the irrational self-destructive behaviours of professional athletes? What is it about circumstances involving money and competition that might make people more rational? Do the defenders of rationality believe that we have different brain mechanisms for making small versus large decisions and yet another yet another for dealing with the stock market? Or do they simply have a bone-deep belief that the invisible hand and the wisdom of the markets guarantee optimal behaviour under all conditions?

*On removing bandages*

It turns out, I told the nurses and physicians, that people feel less pain if treatments (such as removing bandages in a bath) are carried out with lower intensity and longer duration than if the same goal is achieved through high intensity and a shorter duration. In other words, I would have suffered less if they had pulled the bandages off slowly rather than with their quick-pull method.

*On why to study irrationality*

My further observation is that we are not only irrational, but predictably irrational—that our irrationality happens the same way, again and again. Whether we are acting as consumers, businesspeople, or policy makers, understanding how we are predictably irrational provides a starting point for improving our decision making and changing the way we live for the better.

*On how we assign monetary value*

Humans rarely choose things in absolute terms. We don't have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly. (For instance, we don't know how much a six-cylinder car is worth, but we can assume it's more expensive than the four-cylinder model.)In the case of the Economist, I may not have known whether the Internetonly subscription at $59 was a better deal than the print-only option at $125. But I certainly knew that the print-and-Internet option for $125 was better than the print-only option at $125.

*On everything being relative*

Most people don't know what they want unless they see it in context. We don't even know what we want to do with our lives—until we find a relative or a friend who is doing just what we think we should be doing. Everything is relative, and that's the point.

*How decoys determine our decision-making*

Relativity is (relatively) easy to understand. But there's one aspect of relativity that consistently trips us up. It's this: we not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable—and avoid comparing things that cannot be compared easily. That may be a confusing thought, so let me give you an example.

Suppose you're shopping for a house in a new town. Your real estate agent guides you to three houses, all of which interest you. One of them is a contemporary, and two are colonials. All three cost about the same; they are all equally desirable; and the only difference is that one of the colonials (the “decoy”) needs a new roof and the owner has knocked a few thousand dollars off the price to cover the additional expense. So which one will you choose?

The chances are good that you will not choose the contemporary and you will not choose the colonial that needs the new roof, but you will choose the other colonial. Why? Here's the rationale (which is actually quite irrational).

We like to make decisions based on comparisons. In the case of the three houses, we don't know much about the contemporary (we don't have another house to compare it with), so that house goes on the sidelines. But we do know that one of the colonials is better than the other one. That is, the colonial with the good roof is better than the one with the bad roof.

Therefore, we will reason that it is better overall and go for the colonial with the good roof, spurning the contemporary and the colonial that needs a new roof.

*Why we all need a (-A) in our set*

As a consequence, the inclusion of (-A) in the set, even if no one ever selects it, makes people more likely to make (A) their final choice.

*How to look hotter at a party*

What if you are single, and hope to appeal to as many attractive potential dating partners as possible at an upcoming singles event? My advice would be to bring a friend who has your basic physical characteristics (similar coloring, body type, facial features), but is slightly less attractive (-you). Why? Because the folks you want to attract will have a hard time evaluating you with no comparables around. However, if you are compared with a “-you,” the decoy friend will do a lot to make you look better, not just in comparison with the decoy but also in general, and in comparison with all the other people around. It may sound irrational (and I can't guarantee this), but the chances are good that you will get some extra attention. Of course, don't just stop at looks.

*On man's satisfaction with his salary*

"I was hoping to be making about a hundred thousand.” The executive eyed him curiously.“And now you are making almost three hundred thousand, so how can you possibly complain?” he asked."Well,” the young man stammered, “it's just that a couple of the guys at the desks next to me, they're not any better than I am, and they are making three hundred ten.”

Mencken, the twentieth-century journalist, satirist, social critic, cynic, and freethinker noted, a man's satisfaction with his salary depends on (are you ready for this?) whether he makes more than his wife's sister's husband. Why the wife's sister's husband? Because (and I have a feeling that Mencken's wife kept him fully informed of her sister's husband's salary) this is a comparison that is salient and readily available.

*On why £7 is not £7*

At an office supply store, you find a nice pen for $25. You are set to buy it, when you remember that the same pen is on sale for $18 at another store 15 minutes away. What would you do? Do you decide to take the 15-minute trip to save the $7? Most people faced with this dilemma say that they would take the trip to save the $7. Now you are on your second task: you’re shopping for your suit. You find a luxurious gray pinstripe suit for $455 and decide to buy it, but then another customer whispers in your ear that the exact same suit is on sale for only $448 at another store, just 15 minutes away. Do you make this second 15-minute trip? In this case, most people say that they would not.

But what is going on here? Is 15 minutes of your time worth $7, or isn't it? In reality, of course, $7 is $7—no matter how you count it. The only question you should ask yourself in these cases is whether the trip across town, and the 15 extra minutes it would take, is worth the extra $7 you would save. Whether the amount from which this $7 will be saved is $10 or $10,000 should be irrelevant. This is the problem of relativity—we look at our decisions in a relative way and compare them locally to the available alternative.

We compare the relative advantage of the cheap pen with the expensive one, and this contrast makes it obvious to us that we should spend the extra time to save the $7. At the same time, the relative advantage of the cheaper suit is very small, so we spend the extra $7. This is also why it is so easy for a person to add $200 to a $5,000 catering bill for a soup entrée, when the same person will clip coupons to save 25 cents on a one-dollar can of condensed soup.

*On escaping the cycle of relativity*

In his case, he started by selling his Porsche Boxster and buying a Toyota Prius in its place. “I don't want to live the life of a Boxster,” he told the New York Times, "because when you get a Boxster you wish you had a 911, and you know what people who have 911s wish they had? They wish they had a Ferrari.”

The more we have, the more we want And the only cure is to break the cycle of relativity.

Or, as Mark Twain once noted about Tom Sawyer, “Tom had discovered a great law of human action, namely, that in order to make a man covet a thing, it is only necessary to make the thing difficult to attain.”

*On spending behaviours: ANCHORING*

Did the digits from the social security numbers serve as anchors? Remarkably, they did: the students with the highest-ending social security digits (from 80 to 99) bid highest, while those with the lowest-ending numbers (1 to 20) bid lowest. The top 20 percent, for instance, bid an average of $56 for the cordless keyboard; the bottom 20 percent bid an average of $16. In the end, we could see that students with social security numbers ending in the upper 20 percent placed bids that were 216 to 346 percent higher than those of the students with social security numbers ending in the lowest 20 percent.

The significance of this is that once the participants were willing to pay a certain price for one product, their willingness to pay for other items in the same product category was judged relative to that first price (the anchor). This, then, is what we call arbitrary coherence. Initial prices are largely "arbitrary” and can be influenced by responses to random questions; but once those prices are established in our minds, they shape not only what we are willing to pay for an item, but also how much we are willing to pay for related products.

But price tags by themselves are not necessarily anchors. They become anchors when we contemplate buying a product or service at that particular price. That's when the imprint is set. From then on, we are willing to accept a range of prices—but as with the pull of a bungee cord, we always refer back to the original anchor. Thus the first anchor influences not only the immediate buying decision but many others that follow.

Annoying sound plays - financial anchors are placed 10c vs 90c to listen to the sound again with the questions - how much (minimum) would you need to get paid to hear it again. The amount is more than double for those anchored at 90c. Even after being both suggested to accept 50c, and then have the 90c and 10c flipped, they stick to their initial anchor

What did we show? That our first decisions resonate over a long sequence of decisions. First impressions are important, whether they involve remembering that our first DVD player cost much more than such players cost today (and realizing that, in comparison, the current prices are a steal) or remembering that gas was once a dollar a gallon, which makes every trip to the gas station a painful experience. In all these cases the random, and not so random, anchors that we encountered along the way and were swayed by remain with us long after the initial decision itself.

*On spending behaviours: HERDING*

We call this type of behavior herding. It happens when we assume that something is good (or bad) on the basis of other people's previous behavior, and our own actions follow suit. But there's also another kind of herding, one that we call self-herding. This happens when we believe something is good (or bad) on the basis of our own previous behavior. Essentially, once we become the first person in line at the restaurant, we begin to line up behind ourself in subsequent experiences.

*How Starbucks created it's new category of coffee prices by removing its anchors*

How to remove anchors to get people to move up price brackets the Starbucks way: The showcases presented alluring snacks—almond croissants, biscotti, raspberry custard pastries, and others. Whereas Dunkin' Donuts had small, medium, and large coffees, Starbucks offered Short, Tall, Grande, and Venti, as well as drinks with high-pedigree names like Caffè Americano, Caffè Misto, Macchiato, and Frappuccino. Starbucks did everything in its power, in other words, to make the experience feel different—so different that we would not use the prices at Dunkin' Donuts as an anchor, but instead would be open to the new anchor that Starbucks was preparing for us. And that, to a great extent, is how Starbucks succeeded.

You can convince people to pay for or be paid for the same thing (reading poetry) based on what you ask for in the first place (anchor).

There are wealthy gentlemen in England who drive four horse passenger-coaches twenty or thirty miles on a daily line in the summer because the privilege costs them considerable money; but if they were offered wages for the service, that would turn it into work, and then they would resign.”

*Paying attention and ridding ourselves of bad anchors*

You might begin by questioning that habit. How did it begin? Second, ask yourself what amount of pleasure you will be getting out of it. Is the pleasure as much as you thought you would get? Could you cut back a little and better spend the remaining money on something else? With everything you do, in fact, you should train yourself to question your repeated behaviors. In the case of the cell phone, could you take a step back from the cutting edge, reduce your outlay, and use some of the money for something else? And as for the coffee - rather than asking which blend of coffee you will have today, ask yourself whether you should even be having that habitual cup of expensive coffee at all.

"We should also pay particular attention to the first decision we make in what is going to be a long stream of decisions (about clothing, food, etc.). When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention. Socrates said that the unexamined life is not worth living. Perhaps it's time to inventory the imprints and anchors in our own life. Even if they once were completely reasonable, are they still reasonable? Once the old choices are reconsidered, we can open ourselves to new decisions—and the new opportunities of a new day. That seems to make sense.

It seems then that instead of consumers' willingness to pay influencing market prices, the causality is somewhat reversed and it is market prices themselves that influence consumers' willingness to pay. What this means is that demand is not, in fact, a completely separate force from supply.

*How anchors may be limiting our happiness:*

For example, because of some unfortunate initial anchors we might mistakenly trade something that truly gives us a lot of pleasure (but regrettably had a low initial anchor) for something that gives us less pleasure (but owing to some random circumstances had a high initial anchor). If anchors and memories of these anchors—but not preferences determine our behavior, why would trading be hailed as the key to maximizing personal happiness (utility)?

*On why rules break down at £0*

There's no visible possibility of loss when we choose a FREE! item (it's free). But suppose we choose the item that's not free. Uh-oh, now there's a risk of having made a poor decision—the possibility of a loss. And so, given the choice, we go for what is free. For this reason, in the land of pricing, zero is not just another price.

Think how powerful that idea is! Zero is not just another discount. Zero is a different place. The difference between two cents and one cent is small. But the difference between one cent and zero is huge! If you are in business, and understand that, you can do some marvelous things. Want to draw a crowd? Make something FREE! Want to sell more products? Make part of the purchase FREE! Similarly, we can use FREE! to drive social policy. Want people to drive electric cars? Don't just lower the registration and inspection fees—eliminate them, so that you have created FREE! In the same way, if health is your concern, focus on early detection as a way to eliminate the progression of severe illnesses. Want people to do the right thing—in terms of getting regular colonoscopies, mammograms, cholesterol checks, diabetes checks, and such? Don't just decrease the cost (by decreasing the co-pay). Make these critical procedures FREE!

*Market vs social norms*

As Margaret Clark, Judson Mills, and Alan Fiske suggested a long time ago, the answer is that we live simultaneously in two different worlds—one where social norms prevail, and the other where market norms make the rules. The social norms include the friendly requests that people make of one another. Could you help me move this couch? Could you help me change this tire? Social norms are wrapped up in our social nature and our need for community. They are usually warm and fuzzy. Instant pay-backs are not required: you may help move your neighbor's couch, but this doesn't mean he has to come right over and move yours. It's like opening a door for someone: it provides pleasure for both of you, and reciprocity is not immediately required. The second world, the one governed by market norms, is very different.

There's nothing warm and fuzzy about it. The exchanges are sharp-edged: wages, prices, rents, interest, and costs-and-benefits. Such market relationships are not necessarily evil or mean-in fact, they also include selfreliance, inventiveness, and individualism—but they do imply comparable benefits and prompt payments. When you are in the domain of market norms, you get what you pay for—that's just the way it is. When we keep social norms and market norms on their separate paths,

A few years ago, for instance, the AARP asked some lawyers if they would offer less expensive services to needy retirees, at something like $30 an hour. The lawyers said no. Then the program manager from AARP had a brilliant idea: he asked the lawyers if they would offer free services to needy retirees. Overwhelmingly, the lawyers said yes. What was going on here? How could zero dollars be more attractive than $30? When money was mentioned, the lawyers used market norms and found he offer lacking, relative to their market salary. When no money was mentioned they used social norms and were willing to volunteer their time.

Why didn't they just accept the $30, thinking of themselves as volunteers who received $30? Because once market norms enter our considerations, the social norms depart.

The conclusion: no one is offended by a small gift, because even small gifts keep us in the social exchange world and away from market norms.

People are willing to work free, and they are willing to work for a reasonable wage; but offer them just a small payment and they will walk away.

Thus, if parents were late—as they occasionally were—they felt guilty about it—and their guilt compelled them to be more prompt in picking up their kids in the future. (In Israel, guilt seems to be an effective way to get compliance.) But once the fine was imposed, the day care center had inadvertently replaced the social norms with market norms. Now that the parents were paying for their tardiness, they interpreted the situation in terms of market norms. In other words, since they were being fined, they could decide for themselves whether to be late or not, and they frequently chose to be late. Needless to say, this was not what the day care center intended.

*The dangers of a friendly business*

But here's what I find strange: although companies have poured billions of dollars into marketing and advertising to create social relationships—or at least an impression of social relationships—they don't seem to understand the nature of a social relationship, and in particular its risks. For example, what happens when a customer's check bounces? If the relationship is based on market norms, the bank charges a fee, and the customer shakes it off. Business is business. While the fee is annoying, it's nonetheless acceptable. In a social relationship, however, a hefty late feerather than a friendly call from the manager or an automatic fee waiver—is not only a relationship-killer; it's a stab in the back. Consumers will take personal offense. They'll leave the bank angry and spend hours complaining to their friends about this awful bank. After all, this was a relationship framed as a social exchange. No matter how many cookies, slogans, and tokens of friendship a bank provides, one violation of the social exchange means that the consumer is back to the market exchange. It can happen that quickly.

What's the upshot? If you're a company, my advice is to remember that you can't have it both ways. You can't treat your customers like family one moment and then treat them impersonally—or, even worse, as a nuisance or a competitor—a moment later when this becomes more convenient or profitable.

This is not how social relationships work. If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances. On the other hand, if you think you may have to play tough from time to time-charging extra for additional services or rapping knuckles swiftly to keep the consumers in line—you might not want to waste money in the first place on making your company the fuzzy feel-good choice. In that case, stick to a simple value proposition: state what you give and what you expect in return. Since you're not setting up any social norms or expectations, you also can't violate any-after all, it's just business.

Medical benefits, and in particular comprehensive medical coverage, are among the best ways a company can express its side of the social exchange. But what are many companies doing? They are demanding high deductibles in their insurance plans, and at the same time are reducing the scope of benefits. Simply put, they are undermining the social contract between the company and the employees and replacing it with market norms. As companies tilt the board, and employees slide from social norms to the realm of market norms, can we blame them for jumping ship when a better offer appears?

It's remarkable how much work companies (particularly start-ups) can get out of people when social norms (such as the excitement of building something together) are stronger than market norms (such as salaries stepping up with each promotion).

*We are not the same when aroused*

For example, the idea of enjoying contact with animals was more than twice as appealing when they were in a state of arousal as when they were in a cold state. In the five questions about their propensity to engage in immoral activities, when they were aroused they predicted their propensity to be more than twice as high as (136 percent higher than) they had predicted in the cold state. Similarly, in the set of questions about using condoms, and despite the warnings that had been hammered into them over the years about the importance of condoms, they were 25 percent more likely in the aroused state than in the cold state to predict that they would forego condoms. In all these cases they failed to predict the influence of arousal on their sexual preferences, morality, and approach to safe sex. The results showed that when Roy and the other participants were in a cold, rational, superego-driven state, they respected women; they were not particularly attracted to the odd sexual activities we asked them about; they always took the moral high ground; and they expected that they would always use a condom. They thought that they understood themselves, their preferences, and what actions they were capable of. But as it turned out, they completely underestimated their reactions.

*How to reduce adolescent car accidents*

If a car exceeds 65 miles per hour on the highway, or more than 40 miles per hour in a residential zone, for example, there will be consequences. If the car exceeds the speed limit or begins to make erratic turns, the radio might switch from 2Pac to Schumann's Second Symphony (this would slow most teenagers). Or the car might blast the air conditioning in winter, switch on the heat in summer, or automatically call Mom (a real downer if the driver's friends are present).

*Students and procrastination*

First, that students do procrastinate (big news); and second, that tightly restricting their freedom (equally spaced deadlines, imposed from above) is the best cure for procrastination. But the biggest revelation is that simply offering the students a tool by which they could precommit to deadlines helped them achieve better grades. What this finding implies is that the students generally understood their problem with procrastination and took action to fight it when they were given the opportunity to do so, achieving relative success in improving their grades.

A self control credit card - you get an email when you overdo certain types of spending.

If you hold the top bet on something for a few days, you will be willing to go beyond your planned price at the last minute because of partial ownership. We place irrational value on things we own and we somehow expect others to understand and see this too.

*On being incapable of letting go of inviable options*

What is it about options that is so difficult for us? Why do we feel compelled to keep as many doors open as possible, even at great expense?

Why can't we simply commit ourselves?

Running from door to door is a strange enough human activity. But even stranger is our compulsion to chase after doors of little worth—opportunities that are nearly dead, or that hold little interest for us. My student Dana, for instance, had already concluded that one of her suitors was most likely a lost cause. Then why did she jeopardize her relationship with the other man by continuing to nourish the wilting relationship with the less appealing romantic partner? Similarly, how many times have we bought something on sale not because we really needed it but because by the end of the sale all of those items would be gone, and we could never have it at that price again?

The other side of this tragedy develops when we fail to realize that some things really are disappearing doors, and need our immediate attention. We may work more hours at our jobs, for instance, without realizing that the childhood of our sons and daughters is slipping away. Sometimes these doors close too slowly for us to see them vanishing.

According to our beer studies, you and Aunt Darcy would be better off keeping the information under wraps until after the examination. I'm not saying that this would entice the visitors to pay thousands of dollars for the painting (even though our beer drinkers preferred our vinegar-laced beer as much when they were told after drinking it as when they were not told at all), but it might get you a higher price for Aunt Darcy's work.

*We prefer Coke when we know it's Coke because we know it's Coke*

Whenever a person received a squirt of Coke or Pepsi, the center of the brain associated with strong feelings of emotional connection—called the ventromedial prefrontal cortex, VMPFC—was stimulated. But when the participants knew they were going to get a squirt of Coke, something additional happened. This time, the frontal area of the brain—the dorsolateral aspect of the prefrontal cortex, DLPFC, an area involved in higher human brain functions like working memory, associations, and higher-order cognitions and ideas—was also activated. It happened with Pepsi—but even more so with Coke (and, naturally, the response was stronger in people who had a stronger preference for Coke). The reaction of the brain to the basic hedonic value of the drinks (essentially sugar) turned out to be similar for the two drinks. But the advantage of Coke over Pepsi was due to Cokes's brand—which activated the higher-order brain mechanisms. These associations, then, and not the chemical properties of the drink, gave Coke an advantage in the marketplace.

*Stereotypes and behaviour*

The performance of the two groups differed in a way that matched the stereotypes of both women and Asian-Americans. Those who had been reminded that they were women performed worse than those who had been reminded that they were Asian-American. These results show that even our own behavior can be influenced by our stereotypes, and that activation of stereotypes can depend on our current state of mind and how we view ourselves at the moment. Perhaps even more astoundingly, stereotypes can also affect the behavior of people who are not even part of a stereotyped group.

*Blind conditions are the closest we can get to the truth*

In our experiments, tasting beer without knowing about the vinegar, or learning about the vinegar after the beer was tasted, allowed the true flavor to come out. The same approach should be used to settle arguments: The perspective of each side is presented without the affiliation—the facts are revealed, but not which party took which actions. This type of “blind” condition might help us better recognize the truth. When stripping away our preconceptions and our previous knowledge is not possible, perhaps we can at least acknowledge that we are all biased. If we acknowledge that we are trapped within our perspective, which partially blinds us to the truth, we may be able to accept the idea that conflicts generally require a neutral third party—who has not been tainted with our expectations—to set down the rules and regulations.

*Placebo: in surgery and cash*

The fact that the effectiveness of arthroscopic lavage and debridement in patients with osteoarthritis of the knee is no greater than that of placebo surgery makes us question whether the $1 billion spent on these procedures might be put to better use."

Indeed. At $2.50 almost all our participants experienced pain relief from the pill. But when the price was dropped to 10 cents, only half of them did. Moreover, it turns out that this relationship between price and placebo effect was not the same for all participants, and the effect was particularly pronounced for people who had more experience with recent pain. In other words, for people who had experienced more pain, and thus depended more on pain medications, the relationship was more pronounced: they got even less benefit when the price was discounted. When it comes to medicines, then, we learned that you get what you pay for. Price can change the experience.

*On crimes and dishonesty*

Why are some crimes, particularly white-collar crimes, judged less severely than others, we wondered—especially since their perpetrators can inflict more financial damage between their ten o'clock latte and lunch than a standard-issue burglar might in a lifetime? After some discussion we decided that there might be two types of dishonesty. One is the type of dishonesty that evokes the image of a pair of crooks circling a gas station. As they cruise by, they consider how much money is in the till, who might be around to stop them, and what punishment they may face if caught (including how much time off they might get for good behavior). On the basis of this cost-benefit calculation, they decide whether to rob the place or not.

Then there is the second type of dishonesty. This is the kind committed by people who generally consider themselves honest—the men and women (please stand) who have “borrowed" a pen from a conference site, taken an extra splash of soda from the soft drink dispenser, exaggerated the cost of their television on their property loss report, or falsely reported a meal with Aunt Enid as a business expense (well, she did inquire about how work was going).

The first conclusion, is that when given the opportunity, many honest people will cheat. In fact, rather than finding that a few bad apples weighted the averages, we discovered thatthe majority of people cheated, and that they cheated just a little bit.

The second, and more counterintuitive, result was even more impressive: once tempted to cheat, the participants didn't seem to be as influenced by the risk of being caught as one might think.

This means that even when we have no chance of getting caught, we still don't become wildly dishonest.

Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his bretheren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard," he noted. To this Smith added, “The success of most people... almost always depends upon the favour and good opinion of their neighbours and equals; and without a tolerably regular conduct these can very seldom be obtained.

Since people engage in a cost-benefit analysis with regard to honesty, they can also engage in a cost-benefit analysis to be dishonest. According to this perspective, individuals are honest only to the extent that suits them (including their desire to please others).

The problem is that our internal honesty monitor is active only when we contemplate big transgressions.

*How to stop people cheating*

The effect of signing a statement about an honor code is particularly amazing when we take into account that MIT doesn't even have an honor code. So we learned that people cheat when they have a chance to do so, but they don't cheat as much as they could. Moreover, once they begin thinking about honesty—whether by recalling the Ten Commandments or by signing a simple statement—they stop cheating completely. In other words, when we are removed from any benchmarks of ethical thought, we tend to stray into dishonesty. But if we are reminded of morality at the moment we are tempted, then we are much more likely to be honest.

So what permits us to cheat when cheating involves nonmonetary objects, and what restrains us when we are dealing with money? How does that irrational impulse work?

But in the larger context, we need to wake up to the connection between nonmonetary currency and our tendency to cheat. We need to recognize that once cash is a step away, we will cheat by a factor bigger than we could ever imagine.

*On ordering at a restaurant*

We found that when people order out loud in sequence, they choose differently from when they order in private. When ordering sequentially (publicly), they order more types of beer per table in essence opting for variety.

Overall, those who made their choices out loud, in the standardwaythat food is ordered at restaurants, were not as happy with their selections as those who made their choices privately, without taking others' opinions into consideration. There was, however, one very important exception: the first person to order beer in the group that made its decisions out loud was de facto in the same condition as the people who expressed their opinion privately, since he or she was unencumbered, in choosing, by other people's choices. Accordingly, we found that the first person to order beer in the sequential group was the happiest of his or her group and just as happy as those who chose their beers in private.

What these results show is that people are sometimes willing to sacrifice the pleasure they get from a particular consumption experience in order to project a certain image to others. When people order food and drinks, they seem to have two goals: to order what they will enjoy most and to portray themselves in a positive light in the eyes of their friends. The problem is that once they order, say, the food, they may be stuck with a dish they don't like — a situation they often regret. In essence, people, particularly those with a high need for uniqueness, may sacrifice personal utility in order to gain reputational utility.

*It is easier to sacrifice consumption in the future for a reward in the future, so make future plans with conequences to stick to seeing them through*

When new employees join a company, in addition to the regular decisions they are asked to make about what percentage of their paycheck to invest in their company's retirement plan, they are also asked what percentage of their future salary raises they would be willing to invest in the retirement plan. It is difficult to sacrifice consumption today for saving in the distant future, but it is psychologically easier to sacrifice consumption in the future, and even easier to give up a percentage of a salary increase that one does not yet have laureate Murray Gell-Mann once said, “Think how hard physics would be if particles could think.”


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