12 Ways That People Behave Irrationally

12 Ways That People Behave Irrationally:

Oftentimes when we think we're behaving rationally, we really aren't.
For example, paying $2.59 for a cup of coffee doesn't make sense when there's cheaper, equally-good coffee across the street.
Behavioral economist Dan Ariely explores this side of human nature in his book "Predictably Irrational: The Hidden Forces That Shape Our Decisions."
We've compiled some of the best theories in his book that explain why we act the way we do.

We're OK with standing in a line that's crowded, but not a line that's short

We are OK with waiting for something when other people are doing the same thing because "we assume that something is good (or bad) on the basis of other people's previous behavior, and our own actions follow suit."
This happens when people peer inside restaurant windows and decide to try the food just because they see other people inside. However, when a restaurant is empty, it'll rarely attract new customers.
Source: "Predictably Irrational: The Hidden Forces That Shape Our Decisions"

Once a price is established in our minds, we will compare other similar items to this 'anchor' price

This explains why pearls and diamonds are so expensive. It's called "imprinting" and it occurs when our psyche puts a price on something and everything else that we encounter in the future is affected by this price.
"Although initial prices are 'arbitrary,' once those prices are established in our minds they will shape not only present prices but also future prices (this makes them 'coherent')."
And "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)."
Source: "Predictably Irrational: The Hidden Forces That Shape Our Decisions"

We only forget about the 'anchor' price when the experience feels so different, it's incomparable

This will explain Starbucks' success. Before the coffee behemoth appeared on every street corner, everyone was used to paying for cheaper coffee.
So how did Starbucks get people to forget about their former anchor prices? By making the experience so vastly different, customers weren't comparing this Starbucks coffee to coffee they've been drinking their entire lives.
Ariely writes:

"Starbucks did everything in its power 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."      

Before you know it, you have "bumped yourself into another curve of consumption" and you've established a new anchor price from your experience.
Source: "Predictably Irrational: The Hidden Forces That Shape Our Decisions"


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