Predictably irrational
by Benjamin on July 9, 2009
A few years back I went for a psychology seminar where the presenter gave a talk coming pretty close to the game theory work on elections, arguing that if you have a choice between A and B, where you prefer A, then the introduction of a third, inferior, option, can make you switch your preference to B… The presentation used an example from the Economist where subscribers were offered three subscription offers: (A: $59 on-line; B: $129 print; C: $129 on-line and print), and while B appears pointless, potential subscribers offered options A & C only would generally choose option A for $59 (by a large margin), however, when given A, B and C, the majority of new subscribers went for C at $129.
Following up on this or re-inventing it, Dan Ariely, of MIT, uses pictures as metaphors in arguing that we are not as rational as we think, and in fact when it comes to the world, our ability to be rational can fail quite spectacularly outside the immediately physical realm. That means stock-markets, financial derivatives, theory etc etc. Well worth 15 minutes of watching:
There is also an older talk on how people cheat and how much they cheat by. What influences our tendency to cheat the system and what are the implications here.
Tags: Behavioral economics, Dan Ariely, irrational, rational
