In an interview on Decision-Making

Your last book is called Predictably Irrational.

This is a very popular book by Dan Ariely, a really smart behavioural economist who is now at Duke (he was at MIT). The reason it’s important is that it really gives you a sense of all the different ways in which behavioural economics is flowering. This is a field that is just 20 years old, which by academic standards is very new. Dan Ariely is a very a creative guy. He was able to take this basic idea, that humans are irrational, and mine it in a million different directions. For example, one of my favourite studies is brand-name versus generic aspirin. He shows that for whatever reason we’ve got his heuristic, this expectation, that we get what we pay for. And when you give people more expensive things, even if they’re the exact same thing, people actually get more pleasure out of the more expensive product, they find the more expensive version more useful. And brand-name versus generic aspirin is a good way of showing this. You have the exact same active ingredient, no difference between the product, the pills are identical. And yet the brand-name aspirin is much more effective at curing our headaches.

The other really important feature of his work – and this is an increasing theme of behavioural economics – is the importance of contextual conditions in shaping how people think. So one of the real flaws in the rational agent model was that people are always rational, it doesn’t matter what the situation is, people always act in this very predictable way. We’re actually not that consistent, so that even when it comes to our irrationality, we’re not entirely predictable. So the title of the book is actually sort of misleading. Very small changes in context and circumstances can dramatically alter our behaviour and our response to incentives. In one situation, in one kind of classroom, we won’t cheat and we’ll all seem like very honest souls. Tweak a few variables, make us a little bit more anonymous, and all of a sudden we’re cheating on everything. So we’re just beginning to understand how complicated and subtle our decision-making machinery is.

So where does all this get us?

That’s the million-dollar question. The important thing to note is that it gets you nowhere, unless you’re self-aware. You can know about all the biases in the world, and, unless you are able to take them into account when making a decision, it’ll be useless knowledge. That’s the crucial ingredient, what psychologists refer to as meta-cognition – thinking about thinking. Unless you practise meta-cognition, unless you think about loss aversion when you’re evaluating your own stock portfolio, or unless you worry about this bias for more expensive things when shopping for aspirin, you’re going to make the same mistakes as everybody else.

Is that what your book is about? I saw you mentioned on your blog on Amazon that you are a very indecisive person and that’s what prompted you to write a book on decision-making.

I’m pathologically indecisive as a matter of fact. My book was definitely an attempt to apply this knowledge, first of all to try and put it in the context of modern neuroscience, but also to say, ‘Well, great, people are stupid, we do all sorts of stupid things, we’re incredibly irrational, we pay a year’s salary for a black tulip. So what do we do now? How do we apply this in order to make better decisions?’ It’s a larger societal question too. As we develop better models of how humans actually behave, we can actually begin to explain how we choose which stocks we buy, what we buy in the supermarket. And then the important question becomes, ‘Great, we have these lovely models! But how do I actually use this knowledge to make better decisions? How do we turn behavioural economics into an applied science? So that next time we structure regulation we won’t be quite so tempted by subprime mortgages…’ Those are the really important questions. But at this point, given the science is so new, the best advice someone can give you is, ‘Look, what you really need to do is to learn this list of biases, these flaws, these hardwired mistakes, and begin to take them into account in your own life when you’re making decisions.’ Because that’s the only way we’re going to be able to avoid them.

In an interview on Negotiating the Digital Age

Will you introduce Predictably Irrational for us? We have had Dan Ariely on FiveBooks himself before.

Predictably Irrational is an examination of the way in which we make decisions irrationally, and how that irrationality can be predicted. I find it absolutely fascinating. In some ways it is a handbook for behavioural self-defence. There are governments and corporations which have a high skill level of decision-making judo. If you don’t at least have a basic knowledge of it, they can push you around like a chess piece. Predictably Irrational is the book that can make you more aware of yourself as an irrational decision maker.

How do you connect the book to the information age? Haven’t we always been irrational?

We have always been irrational, but good decision making is the core skill of the digital age, because the digital world allows people to gather information on an unprecedented scale. There was recently a slightly crude study which collected data from Twitter about mood. They showed a mood cycle which is pretty much ubiquitous. You are get-up-and-goish on Monday, delighted on Tuesday, a little unhappy on Wednesday, and the graph goes down until you get to the weekend. Mood cycle is immensely important when you launch a product, depending on what the product is and how you want people to feel about it. So if you combine that with the information about individuals which you can find on Facebook or Google, you have an awareness of what people are thinking which probably reaches above what they’re aware of themselves.

This is important because there is a trend towards choice architectures – nudging – in liberal democracies and in the idea of liberal paternalism. A choice which is deemed to be desirable by the group in power is pushed upon you using a series of options, which are either awful, socially shameful or the option which they want you to pick. One example of this is organ donation, which has always been opt in. There have never been enough organs, and there is obvious societal good in securing people’s consent for organ donation, so you can very simply improve the organ donation rate by making it opt out.

The trouble with that, apart from anything else, is that it diminishes our ability to make decisions. Decision making is a skill which you have to practice, retain and do consciously, cognitively and thoughtfully. It is the central tenet of a democratic society that people make good decisions, vote on them and drive good leadership in the process. If you make sure that the electorate is never presented with a difficult decision…

…you end up electing Boris Johnson as mayor of London again?

Indeed, why bother having an election at all at that point? You’re not doing democracy any more, you’re doing something which looks like democracy but is actually puppeteering.