Our irrational streak

Understanding why humans make such poor choices

Published - May 28, 2018 12:15 am IST

How often do we buy something that we will never use only because something free comes with it? And how many times have we added something extra to our e-shopping carts just to hit the minimum spend required for free delivery?

Human beings have a tendency to make poor money-related choices that they often regret. But it’s not just in the economic sphere; we have a tendency to make poor choices about everything. This is what behavioural economics attempts to capture and, to a certain extent, remedy.

Richard Thaler, who won the 2017 Nobel Prize for his pioneering work in behavioural economics, writes about this in his book Misbehaving . Forty years ago, Thaler started noting down examples of choices made by people that were not in line with economic theory. Misbehaving is full of anecdotes that highlight irrational behaviour. For example, even if an expensive meal doesn’t particularly appeal to our taste buds, we continue to eat it because we have paid for it. This is called the sunk cost fallacy: the more we invest in something, the more difficult it becomes to abandon it and so we continue with the act of eating in this case even if it causes us some disappointment.

Dan Ariely says in Predictably Irrational that we make irrational decisions to the point of being predictable. In one of his experiments, people were given a painkiller for $2.5. Later, the same painkiller was offered for 10 cents. The test subjects did not know that both the painkillers were the same. In line with the irrationality principle, people thought that the more expensive the painkiller, the more effective it would be. The best part of this experiment? Both versions of the ‘painkiller’ were just vitamin C capsules.

While Misbehaving and Predictably Irrational are largely about irrational decisions at the individual level, SuperFreakonomics by Steven Levitt and Stephen Dubner is a macro study. For instance, the authors examine whether our climate change models are wrong. By solely targeting greenhouse gas emissions from vehicles, are we missing out on, say, flatulence from industrial animal farms, which is a huge contributor of methane? By outlining the story of how the seat belt came into existence and how it was – and still is – so difficult to convince people to wear them, the authors also highlight why changing human behaviour is so difficult despite the obvious benefits of such change.

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