Predictably Irrational: The Hidden Forces That Shape Our Decisions
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Predictably Irrational: The Hidden Forces That Shape Our Decisions Customer Reviews
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I am just starting the book. Chapter one is ok. Good approach to what the author names relativity. Some irrationality is hidden in this decision mechanism and can be exploited by a clever guy.
In chapter two, the author presents the concept of anchor and an example to demonstrate how an initial and sometimes irrational information can influence future decisions. I think the concept of anchor, as presented by the author, is limited, its use is rational and the experiment is apparently misinterpreted.
Some products are very difficult to valuate. Gems are a classical example. It is not possible for a median consumer to estimate the value of a gem. The black pearl dealer was very smart in associating it to expensive products. For such products, suggested prices work very well. The sounds used by the author in his experiment are a fantastic example of a difficult-to-valuate product. The author used two groups of participants. All participants heard the same annoying sound. The first group was asked whether they accepted to hear again the sound for 10 cents (first anchor for this group). The second group had 90 cents as the anchor. Each participant had to say yes or no. The author did not report the result. It is easy to accept that the participants would adopt the suggested values as the prices of such exotic products. Then both groups were asked to bid how much they would accept for hearing again the sound. The first group (10cents anchor) offered in average 33 cents. The second group (90 cents anchor) offered 73 cents. It demonstrates that both groups accepted the anchors. Those of each group who bid the lowest values won the auction. With this, they learned that they had to offer low bids. But what is a low bid? This depends on the reference value they have for the product.
A second round of the experiment was run. The author played a second annoying sound to both groups and asked whether they accepted to hear it again for 50 cents (second anchor - the same for all). The participants had to say yes or no. The author did not mention the result. I guess that the first group accepted better than the second one because this was a better offer than the first one. The second group had a worse offer. This would be a rational decision. Then both groups were asked to bid how much they would accept for hearing again the second sound. The result was that the first group bade less than the second one, but the values were not mentioned. The author concluded that the first anchor had surpassed the second one. This would be a proof that initial information could influence future decisions even if they are not rational.
I think this conclusion is too much simple. In my opinion, the groups could have behaved very rationally. This depends on the hidden information. That is why I said that this experiment was apparently misinterpreted. I think the participants can hold or change the anchors as many times as they see an advantage in it. I think that the first group accepted much better the 50 cents anchor than the second group, because this was an advantage for this group and a disadvantage for the second group. But the first group held the old 10 cents anchor when they bid for the second auction because they learned that to win they had to bid low, and this group had a very low reference value, while the second group had not. I guess that the second group bade less than the 73 cents of the first auction. This would indicate that part of this group accepted the second anchor and used it to make the second bid because it was the lowest reference they had. The experiment had a third round that is just a repetition of the second one. The results confirmed those ones of the second round.
In conclusion, I think that anchors are accepted irrationally only if it is difficult for the person to valuate the product. The anchors can held or change for future decisions only if this brings advantage. This is a very rational behavior.
The authors did not mention an interesting result. Although the price of sounds is very difficult to estimate, the participants developed a mechanism for doing so. In the first auction, the first group bade in average 33 cents, higher than the first anchor. The second group bade 75 cents, lower than the first anchor. Thus, the groups developed a way to estimate value, even though based on initial anchors.
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