I remember a feeling of loosing faith in the research that Ariely presents to make his points

Saffron,
I copied this and was going to agree with you...but then I read on and discovered you had been confused and have decided that you did.

DWill,
I was bothered both by Ariely's experiments themselves and by the conclusions he drew from them. Also, is continued use of FREE! I found very patronizing. I am at a disadvantage here never having studies economics in the classroom, but I have never agreed with what you are referring to as the standard theory, at least as far as I, from a layman's point of view, understand it.

Ariely uses one example of being offered an Amazon gift certificate for free worth $10 vs being offered an alternative $20 gift certificate for a cost of $7. Is conclusion is that most of us irrationally would take the free one, but that the $20 one would be the 'rationally better choice'. To me this example does not make sense. In fact, this is exactly the manipulative way that a company encourages us to spend more money...by spending more, you get more for FREE! The only way the $20 choice makes sense is it you already planned to spend that $20 regardless of the offer. This cannot be assumed. I find that many of Ariely's experiments assume too much and assume irrationality or rationality based on his thought processes.

His other conclusion at the end of the chapter is because we are so seduced by FREE! (isn't that annoying?) that we should make certain medical procedures FREE! because everyone will value them more. The value in FREE! is only there because of relativity, so as soon as it is always FREE! is ceases to have value.

realiz wrote: Ariely uses one example of being offered an Amazon gift certificate for free worth $10 vs being offered an alternative $20 gift certificate for a cost of $7. Is conclusion is that most of us irrationally would take the free one, but that the $20 one would be the 'rationally better choice'. To me this example does not make sense. In fact, this is exactly the manipulative way that a company encourages us to spend more money...by spending more, you get more for FREE! The only way the $20 choice makes sense is it you already planned to spend that $20 regardless of the offer. This cannot be assumed. I find that many of Ariely's experiments assume too much and assume irrationality or rationality based on his thought processes.

I see your point. In order for Ariely to have be right about FREE! (yes, it is annoying and in-your-face), he has to show not just that we love free, but that when it is paired with another choice it causes us to make an irrational decision. That doesn't seem to be the case with the first phase of the experiment, as you say. It's rational to take the freebie because it wasn't in our plans to spend money on any certificate. The second phase of the experiment, where the $10 certificate cost $1 and the $20 cost $8 had a much different result. Most people decided to buy the $20 certificate. I wonder if those who chose not to participate at all were counted. That would seem pretty important.

His other conclusion at the end of the chapter is because we are so seduced by FREE! (isn't that annoying?) that we should make certain medical procedures FREE! because everyone will value them more. The value in FREE! is only there because of relativity, so as soon as it is always FREE! is ceases to have value.

Perhaps, though, the effect would last because all other medical procedures would continue to cost money, so we'd still see the free procedure as desirable by comparison. This might certainly be the case if we're uninsured. If we're insured, his point seems to be that such preventive tests are pretty cheap already, but to offer them for free would create a surge in response that would seem out of proportion to the amount we'd save. That would need to be tested.

I see the logic in his other examples of the emotional (i.e., irrational) pull that FREE! (sorry) has on us. I hope you keep reading despite some frustration with this book. It's good to hold the author accountable for questionable conclusions.

I am still reading, and disagreeing, but I will move my comment to the appropriate chapter.

I was at the library yesterday looking for a book we're discussing here, they didn't have the one I was looking for so I grabbed the Upside of Irrationality thinking it was "Predictably Irrational" which IS up on the board out there, but I was just... well... wrong. I'm too lazy to go a hunting again so I'm going to read this one, but was wondering if we have a thread for it anywhere, but this is all I could find when I did a search, so I'm assuming we do not. In any event I've become quite taken by the charm of the "The Shadow Effect" so I'll just keep going, doing my own thing, and hope that by the time the new reading selections are made that I will have an easier time getting my hands on the shared reading experience.

I read the book two years ago, and found the arguments persuasive. Since I've read other books making similar claims, I was more inclined to accept Ariely's conclusions.

If you're interested in the impact of making things free, the following book provides more details from a different perspective.

Free: How Today's Smartest Businesses Profit by Giving Something for Nothing by Chris Anderson
http://www.amazon.com/Free-Smartest-Bus ... ap_title_0

In the digital marketplace, the most effective price is no price at all, argues Anderson (The Long Tail). He illustrates how savvy businesses are raking it in with indirect routes from product to revenue with such models as cross-subsidies (giving away a DVR to sell cable service) and freemiums (offering Flickr for free while selling the superior FlickrPro to serious users). New media models have allowed successes like Obama's campaign billboards on Xbox Live, Webkinz dolls and Radiohead's name-your-own-price experiment with its latest album. A generational and global shift is at play—those below 30 won't pay for information, knowing it will be available somewhere for free, and in China, piracy accounts for about 95% of music consumption—to the delight of artists and labels, who profit off free publicity through concerts and merchandising. Anderson provides a thorough overview of the history of pricing and commerce, the mental transaction costs that differentiate zero and any other price into two entirely different markets, the psychology of digital piracy and the open-source war between Microsoft and Linux. As in Anderson's previous book, the thought-provoking material is matched by a delivery that is nothing short of scintillating.

DWill wrote: If you accept that much of our behavior in the economic sphere isn't rational (and I think I do), does that mean that, overall, we aren't rational? I'm not sure about that.

When I first read the description of this book, I expected to disagree with much of it because it sounded as if it was going to paint us as irrational beings.

I never got that impression from the book, though, for Ariely never seems to portray the irrational decisions as unintelligible. The thinking (and the word rationality could be used there) behind the irrational choices is something I always felt I could understand. Even if I often felt it played into my mindset to a lesser degree, I at least knew that I've been somewhere close to that.

Then again, I'm sure there's also some arrogance involved in reading about the experiment from the outside to say, 'Well I'd never be that foolish.'

So I don't think the research is ever meant to paint us as irrational beings, just to remind us to be more rational and analytical about somethings, such as those annoyingly FREE! products.

joshxb wrote:

DWill wrote: If you accept that much of our behavior in the economic sphere isn't rational (and I think I do), does that mean that, overall, we aren't rational? I'm not sure about that.

When I first read the description of this book, I expected to disagree with much of it because it sounded as if it was going to paint us as irrational beings.

I never got that impression from the book, though, for Ariely never seems to portray the irrational decisions as unintelligible. The thinking (and the word rationality could be used there) behind the irrational choices is something I always felt I could understand. Even if I often felt it played into my mindset to a lesser degree, I at least knew that I've been somewhere close to that.

Then again, I'm sure there's also some arrogance involved in reading about the experiment from the outside to say, 'Well I'd never be that foolish.'

So I don't think the research is ever meant to paint us as irrational beings, just to remind us to be more rational and analytical about somethings, such as those annoyingly FREE! products.

I think you're right that when we talk about irrational decisions, we usually imply they have no rhyme or reason. The decisions Ariely talks about are "intelligible," as you say, and "predictable" as he says, and does that remove them from the sphere of true irrationality? I agree with you that it might. Have you noticed whether Dan ever defines rationality? I can't recall where he does. He seems to imply that rationality is a cut-and-dried logical quality, but I wouldn't want to restrict rationality so much. One also doesn't need to write a book to tell us that we don't mainly run on logic!

DWill wrote:Have you noticed whether Dan ever defines rationality? I can't recall where he does. He seems to imply that rationality is a cut-and-dried logical quality, but I wouldn't want to restrict rationality so much. One also doesn't need to write a book to tell us that we don't mainly run on logic!

I don't believe he ever does explicitly define rationality, but I don't think he has to.
Behind the focus of each chapter (and I think he makes this very clear at the end) is the assumption that traditional economic models are based on actors acting in ways to maximize their benefit.
I think this is all Ariely means by being 'rational,' using it as a term to describe how that model works, and not really getting into the philosophy of if that is best, or even truly rational.
I think there is a debate on whether the actions described in this work are truly rational/irrational, but I don't think that's within the scope of the book, and don't believe it should be.

He is tearing down what traditional models say people should/will do, and these are rational/irrational are just the terms he uses, and we have to accept them as he uses them.