Predictably Irrational

I have for some years been dodging Dan Ariely’s book, Predictably Irrational.  In spite of the fact that it brings together two of my greatest academic and professional interests (economics and psychology), the book itself is very popular with unsavory characters (pretentious pseudo-intellectuals) and suffered in my estimation from guilt by association.   Having read the book, my estimation of the book and its readership has not improved at all.

The introduction sets up a basic premise: that the flaw in traditional economics is that it portrays the behavior of the individual person as perfectly informed and completely rational, which is not at all the case when you look at consumer behavior.    This is why economics (which attempts to encourage the right decisions) and psychology (which considers the decisions people actually make) are often at odds with one another.

The problem is that the author proposes the opposite extreme: he suggests that decisions are always based on a person who is completely uninformed and completely irrational – so we should toss out the economics texts and surrender to pseudopsychology instead.  The problem here is in implying that because something isn’t perfectly true, its opposite must therefore be perfectly true.  In Rhetoric 101, this is referred to as the “black or white” fallacy that fails to account for probabilities: because all swans are not white does not mean all swans are black - most are white, a rare few are black.

Granted, there’s a great deal of argument to be had about how many black versus white birds exist in the general swan population – and for the present topic, there is likewise a great deal of argument to be had about how many consumer decisions are rational and informed as opposed to being irrational and ignorant.  A statement of “all” in favor of either extreme is likely very wrong.

If the book were complete stuff-and-nonsense, I’d be far less offended by it – but like all successful acts of deception it contains enough of the truth to gain credibility with people who do not pay much attention.   That is to say that irrational decision making does occur, and the examples the author provides often draw upon well-founded principles of behavioral psychology.

That is, we do act on impulse, we do not have sufficient information for the decisions we make, we do fail to consider the long-term consequences of a short-term decision, and so on.   But we do these things sometimes, not always, and the seeming disparity between economics and psychology is the difference in the definition of two words: do and should.

So in the end I do not accept the all-or-nothing approach of the author, nor condone the notion that economics should be discarded for the sake of psychology:  both have their place.   Economics counsels us in what we ought to do, psychology makes us aware of what we actually do.   For any individual, both are essential in comparing the “as is” state (psychology) to a desirable “to be” state (economics) – and that if a successful synthesis of these subjects is ever to be written, it will have to be by an author who respects the importance of both.