This article is an excerpt from the Shortform book guide to "Predictably Irrational" by Dan Ariely. Shortform has the world's best summaries and analyses of books you should be reading.
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How do we make decisions? What factors influence our decision-making process? Are our decisions rational?
In the book Predictably Irrational, author Dan Ariely explains that humans make irrational decisions that are so predictable that they are often taken advantage of by society, especially the marketing industry. He also explains how relativity makes decisions for you.
Keep reading to learn the psychology behind how we make decisions.
How We Make Decisions
How do we make decisions? Well, the standard economic model that our world operates on is based on the idea that humans are rational creatures. This model assumes that when you’re presented with options or a decision to make, you’ll carefully weigh the benefits and drawbacks of each of your options, and choose the best possible outcome for yourself.
Furthermore, this model dictates that in the case you do act irrationally and make a poor decision, the flaw of your decision will be quickly revealed to you, you’ll realize your mistake, and you’ll avoid making the same mistake again in the future.
Behavioral economics, on the other hand, argues that humans are systematically irrational, often don’t recognize their mistakes, and don’t learn to make better decisions.
The emerging discipline of behavioral economics pushes against the standard economic model and seeks to understand why humans so frequently depart from perfect reasoning skills and how our everyday environments are used to influence and shape irrational behaviors and decisions.
Both experiments and real-life scenarios consistently reveal a significant quirk of human nature—we’re not only irrational but predictably so. Because we’re not conscious of when or why our decisions are irrational, we fail to correct our mistakes. Instead, we continue to repeat the same mistakes in such a predictable way that our irrational line of thinking can be used against us—by marketing agencies, employers, or even your real estate agent.
The good news is, it doesn’t need to be this way. In the book Predictably Irrational, Duke behavioral economist and best-selling author Dan Ariely untangles the common pitfalls of human logic and explores the forces that really drive your actions. Armed with this knowledge and awareness, you can consciously avoid the traps of irrationality and improve your decision-making skills to act in ways more beneficial to you.
How Relativity Makes Decisions For You
It’s human nature to make constant comparisons in an effort to find guidance toward the “right” choice. This is why, as a general rule, people can’t pinpoint what they want until they see someone else with it. For example, if you were asked to shop for headphones, it’s likely you wouldn’t know exactly what to look for because you don’t know what makes for “good” headphones. However, if you spotted someone wearing a really sleek pair of headphones, you’d likely want to buy similar ones. Because someone else has those headphones, we assume that they’re a good choice.
Because of our need for guidance, relativity has a powerful influence on how we make decisions. Humans don’t have an inherent sense of the value of things or what the right decision is. Instead, we resort to surmising the value of an item by considering its relative advantage or disadvantage over another. However, these value-determining comparisons are often set up for us in a way that leads us to irrational choices.
An awareness of how we rely on relativity to make decisions is important because it influences all parts of your life—where and how you spend your money, how you choose who to date, and how satisfied you are with your life.
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Like what you just read? Read the rest of the world's best book summary and analysis of Dan Ariely's "Predictably Irrational" at Shortform .
Here's what you'll find in our full Predictably Irrational summary :
- How logic is failing you on a daily basis
- How to identify your irrational behaviors
- Why getting something for free can cause you to make bad decisions
