Ever survey all the stuff you’ve accumulated and wonder how you ever collected so much cheap junk? Or why the more expensive aspirin seems to alleviate your headache better than the store brand? Marketing professor and behavioral economist Dan Ariely explains it all in his new book, Predictably Irrational: The Hidden Forces That Shape Our Decisions, in which he enlightens readers about the cycle of relativity and how to control it, the allure of the placebo and why it really works, and how studying human behavior has affected his perspective on everything from house-hunting to beer.

 

demo dirt: What inspired you to focus your research on consumer behavior and why we make the decisions that we make?

 

Ariely: This started for me many years ago when I got burned in an explosion—70 percent of my body was burned and I spent time in the burn department in the hospital. Every day I needed my bandages changes and it was so painful. I used to debate with the nurses over the best way to take off the bandages. They said removing them more quickly was better, but I would beg them to do it slowly, and have less intense pain for a longer period of time. They wanted to do it quickly, which meant intense bursts of pain. They did it how they wanted to do it; as a patient they wouldn’t listen to me.

 

I went to university afterwards, when I did research on pain…increasing and decreasing pain. Through the research, I found that I would have had less pain if it had been slower and longer with less intensity. How come the nurses got this wrong? Good, kind individuals who wanted to do right by me, but didn’t? I got to thinking about other examples in which experience and good intentions weren’t enough.

 

demo dirt: In your chocolate experiment, you priced high-quality Lindt chocolates at 15 cents a piece, and Hershey kisses at 1 cent a piece. About 73 percent of your participants chose the Lindt, with 27 percent choosing the kiss. Then you lowered the price of each by one cent, making the Lindt 14 cents a piece, and the kisses free.

 

What did lowering the price by one cent do for sales of Hershey’s kisses versus Lindt chocolates? Does quality overpower price only when the lower quality item is free?

 

Ariely: The basic idea of what we found was that the effect of price changes dramatically when something is free. Do people want a good candy at a good deal, or cheap chocolate at a cheap price?

 

Most people saw the truffle was a much better deal, and when we discounted both by a penny, the Lindt truffle was still a fantastic deal, but now the Hershey kiss was free, so more people chose the Hershey kiss. They chose low quality and free over a fantastic deal for something that was high quality. The effect of quality versus price is more powerful when the lower quality item is free. Everybody has a tradeoff between quality and price. “Free” makes attribute overcome the price.

 

demo dirt: But I am very picky about my chocolate. I would much rather pay for good chocolate than eat a lower-quality free chocolate.

 

Ariely: Results may differ for someone who is quality-sensitive but the same thing may happen in another scenario, like credit cards. Imagine that a credit card company offers a free credit card with higher interest, or one that has a fee but lower interest. Then see what you may do…would you pay less upfront and pay more later?

 

demo dirt: So the principle applies to most people, but not for all situations; like for me it wouldn’t work with chocolate, but maybe with something else it would apply.

 

Ariely: That’s right.

 

demo dirt: What’s the difference between a 50 cent aspirin and a 5 cent aspirin?

 

Ariely: The first thing to realize is that placebos are real. When you take a placebo, your body creates opioids, a morphine-like substance. The body can change its own physiology. When people get cheaper painkillers they have lower expectations and feel more pain. Their bodies make less opioids because they don’t expect them to work as well.

 

demo dirt: What is the cycle of relativity, how does it affect happiness, and how can it be broken?

 

Ariely: One of the things we found out [through our research] is that one of the ways we define happiness is in relative terms. For example, how handsome is your husband, how high is our salary, how big our house is, we all decide on based on how handsome other men are, what other salaries are, and how big other houses are.

 

It is hard to overcome this. Relativity is so powerful that its effects can impossible to overcome. One way is to change your surroundings. Imagine a real estate agent wants to show you a house that you cannot afford. Don’t even look, because it will still influence you even if you have no plans to purchase in that price range.

 

demo dirt: What is the power of expectation, and how does it influence perception?

 

Ariely: The real issue with expectation is that we sometimes think of expectation as not central to reality, but in fact they do change reality, just like the placebo effect is all about expectations. These are central issues to experience. When you expect something to happen, it has a good chance of happening because that’s how you experience the world. So think about the placebo effect…what is happening is the way you expect something to happen, and it changes your physiology.

 

For example, in the experiment with the beer and balsamic vinegar, people didn’t know that adding vinegar to the beer actually makes it taste better. If you told them ahead of time, they thought it tasted terrible because they expected it to. Those who did not know thought it tasted better.

 

If you know about the vinegar ahead of time and expect it to be terrible, you can never enjoy it. Expectations overwhelm reality. If you expect something to taste bad, it will taste bad.

 

demo dirt: How has your research on human behavior influenced the way you relate to people in your personal and professional lives?

 

Ariely: I am always looking for more examples of irrationality. I am always looking for new ideas for research and when I have conversations with people I look to see what kind of mistakes they make in terms of their ways of thinking and the decisions they make.

 

It has affected the family decision making that my wife and I make. We are looking for a house, and we think more carefully about where we want to live, and what kind of people do we want to compare ourselves to. All of that becomes more important.

 

demo dirt: If readers could take only one message from Predictably Irrational, what would you like it to be?

 

Ariely: I would like us to realize that the decisions we make are not always rational and that we should questions ourselves more frequently.

 

demo dirt: What will your future research focus on, and why?

 

Ariely: I am moving more into the domain of doing things in medicine, and I don’t mean I am going to heal people. Medicine is a big part of the economy, and my goal is to understand preventative medicine, and make it less wasteful and more efficient.

 

To find out more about Dan Ariely and Predictably Irrational, go to www.predictablyirrational.com