The one-sentence summary
People are predictably irrational when making decisions, and often make basic mistakes.
- Subtitled The Hidden Forces That Shape Our Decisions, the book explains how to break through our systematic patterns of thought to make better, more financially sound, decisions.
- We think we are in control when it comes to making decisions, but are we? A series of experiments reveal the truth: expectations, emotions, social norms and other invisible, seemingly illogical forces skew our reasoning abilities.
- We make astonishingly simple mistakes, and usually the same type:
1. Consistently overpaying, underestimating, and procrastinating
2. Failing to understand the effects of emotions on what we want
3. Overvaluing what we already own
- The good news is that these misguided behaviours are neither random nor senseless. They’re systematic and predictable – hence the title.
WHAT’S GOOD ABOUT IT
- This book is a close cousin of Freakonomics, Nudge, Sway and several other books on behavioural economics, the study of the financial implications of the judgements and decisions we make. The promise of the discipline is to learn to take into account our flaws and inabilities when we design our world, and thus make it a better place. And yet its greatest challenge is demonstrating its applicability in the real world.
- “In theory, there is no difference between theory and practice, but in practice there is a great deal of difference.” Al Roth, Harvard economist.
- The author is a social scientist with a crucial life story that leads to an observational perspective – aged 18 he was blown up by a magnesium flare in Israel and suffered third-degree burns on 70 per cent of his body.
- Measures we can grapple with include:
1. Everything is relative: decoy effects fool us into thinking otherwise.
2. Supply and demand links are often a fallacy: beware being imprinted into thinking something is more desirable than it truly is.
3. Arbitrary coherence is common: for example, just thinking about old people can make you walk slower.
4. Self-herding is habitual behaviour that you create yourself: it can make you do daft things.
5. The Tom Sawyer principle means that some people will pay you to do something when the transaction should have been the other way round (in the story he manages to get his friends to pay him for the privilege of whitewashing his aunt’s fence).
6. Free is a confusing concept that makes us go for things we don’t really want.
7. You can’t mix social and market norms: don’t offer to pay for the meal that your mother cooks you, and companies can’t have it both ways.
WHAT YOU HAVE TO WATCH
- Not much. It rolls along nicely and makes the points in a clear way.