Listen Here
Interesting Links
Interesting People
Books Mentioned
Influence: The Psychology of Persuasion by Robert B. Cialdini
Win Bigly: Persuasion in a World Where Facts Don't Matter by Scott Adams
Pre-Suasion: A Revolutionary Way to Influence and Persuade by Robert B. Cialdini
The Power of Habit: Why We Do What We Do in Life and Business by Charles Duhigg
Atomic Habit: An Easy & Proven Way to Build Good Habits & Break Bad Ones by James Clear
Extra Notes:
These notes were cut at the editing floor, but they still have value in them.
Introduction
What started Prof. Ariely's journey was an accident in which he got burns over large parts of his body. While in hospital, he had a daily bath routine where they will take the bandages & put new ones. Removing the bandages was done very fast so that the pain comes over a short period of time. However, later on, when he went to university, he tested to see whether it was better for the patient to have a small amount of pain over a long time period or a big amount in a smaller time. His results were that lower pain over a longer period. When he went to the hospital and shared his results, the nurses agreed with him but shared an interesting view. Part of why shorted duration was applied was to minimize the psychological pain on the nurses' side as they hear their patients scream.
CH II
Imprinting: is a natural phenomenon, where a creature sticks with a decision once it has been made.
Economic Implications
The conventional economic theory implies that supply and demand are independent of each other and together they decide the price of a commodity. However, as we saw, consumers can be manipulated into paying higher prices regardless of supply using anchors & arbitrary coherence, which makes pricing influences demand. Another implication is that when prices increase, demand should go down assuming constant supply. However, given time the new prices will become the new anchors and demand will go back as before. This presents a case for hyperinflation.
Brief History of Zero
The idea of the zero was introduced by the Babylonians, then the Indian scholar Pingala added the idea of double digits, by pairing the zero with numeral 1. Around AD 498, a major improvement occurred and the Indian astronomer Aryabhata came with the concept of decimal place value. The zero flourished in the Arab world and crossed into Europe through the Andalus kingdom, and it's journey went on to the new world where it found its most priced use in a place called Silicon Valley.
CH V
"Man is not truly one, but truly two"~Robert Louis Stevenson, Dr. Jekyll, and Mr. Hyde. Initially, I wanted to go with Dr. Jekyll and Mr. Hyde but opted to use the Hulk as it's well-knowns more well-known character. I got introduced to Dr. Jekyll and Mr. Hyde from a movie called “League of Extraordinary Gentlemen".
CH VII
Adam Smith once said, "Every man ...lives by exchanging or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society".
Episode Transcript
Episode Introduction
Hello and welcome to the 1st episode of the TLDR Show, a podcast where I distill the knowledge of books just for you. I am your host Abdelrahman, and I'm very excited to have you with me. For our first series of books, I chose to talk about us, our human nature. How we make irrational decisions, how we get influenced on a personal level and as a group, and how we can use these tactics for our benefit. We have 4 books in this series, starting with Predictably Irrational, Influence, Win Bigly, and Lastly Pre-Suasion. In each episode, we will dive into each one and learn some great insights about us.
Without further a due, let us dive into our first book, Predictably Irrational, subtitled The hidden Forces that shape our decisions. by Dan Ariely.
Book Introduction
[1:00] This book explores the subject of Behavioral Economics, which connects both psychology and economics with our Judgment and Decision Making (JDM) process. In economics, it assumes that we are rational creatures. By rational, we mean that we can make the right decision by ourselves given the input. However, as we will see today, we are irrational creatures, not in a random way, but in a very systematic one. We are, what we can call, Predictably Irrational.
I break down the book's ideas into three main themes, relativity, money, and decision making. Let us start with relativity.
Relativity
[1:39] One of the main ideas in this book is how everything is relative. We rarely choose anything just on absolute terms. We usually look for another object to compare to and make our decision. For example, we usually see someone with a certain house or job, and we put them as a reference point of comparison. We do the same when we are shopping, choosing a place to rent, or even when choosing friends, we are just always comparing. This idea of relativity is also known as the contrast principle. This principle is an important one and we will explore it again, in the upcoming books.
With this in mind, let us see how businesses use relativity. Imagine you go to the cinema and they are selling two sizes of popcorn, a small one for 2 dollars and a large one for 7 dollars. In this case, the large size will look too expensive compared to the smaller one. However, what if they offer a 3rd option, a medium size for 6 dollars. Now the large size is not so expensive and only a dollar more than the medium.
This application of relativity can also be seen in combo meals sets when an extra dollar will make it include a drink and fries compared to the sandwich by itself. Sometimes, it works differently. In the case where you want to sell an item, you can price it between two items, one very cheap but lacks quality, and the other extremely expensive, which will act as a decoy and customers will tend to favorite the middle-ranged priced item.
What is critical about relativity is that we will choose things that we can compare over things we do not have a comparison for. For example, let us say you were offered two cars, a 4-wheel drive (Car A) and a sport car (Car B). Both are excellent cars with similar prices, and you like both. For a salesman who wants to sell the 4-wheel drive, he will introduce a decoy. A third car to make the 4-wheel (Car A) better. The 3rd option will be a car which lacks some of the features of the perfect 4-wheel (Car A-). Rationally, you will think that (Car A) is better than (Car A-). But the irrational part, is that since we don’t have a reference point for (Car B), the introduction of (Car A-), will make(Car A) better than (Car B) too.
This relativity affects our lives in many ways. The best example I can give is the effect of social media. When seeing how other people are living, the bodies they have, the dream job or vacation they are enjoying, relativity can kick in and start ruining our existing lives, which without this comparison, we would enjoy it.
So, can we do something about relativity?
The answer is yes we can. Try to always choose your comparison circle to be within a limit that will not affect your relative happiness. For example, when buying a new item, do not look into options that are outside our budget and focus on ones that you can afford. Using, your relative happiness will not be as damaged. Of course, I am not calling for you to stop improving and getting better, but at the same time, you have to be very careful on what this hunger for more brings you. A great quote from Naval Ravikant “If you want to be successful, surround yourself with people who are more successful than you’re. If you want to be happy, surround yourself with people who are less successful than you’re”, so keep this in mind. On a side note, Naval is an amazing person, and I highly suggest you follow his podcast. I'll link to his Twitter, podcast, and everything in the show notes.
Money
[5:14] Now that we established our relative mindset, let us move into the second theme, money by introducing a new term.
Arbitrary coherence: Is the idea that once a product price is established in our minds, it will affect how much are we willing to pay for it and for other related products too. An example here would be Apple products. Despite being expensive compared to some of their competitors at the start, they fixed the consumers' mindset over its high pricing and they were able to charge higher prices compared to other brands. Now, automatically, when you hear it is from Apple, you assume it will be expensive.
So, what do we call this initial price setting? It is called Anchoring and we will visit throughout this series. But for now, when we talk about anchoring, we are talking about a reference point that we will compare our future decisions to it.
Anchors are powerful tools, and they keep affecting our minds long after we make decisions. I can even say that our first impression when we meet new people, are our anchors and we will compare their future behaviors to it.
Let us take an example. Imagine you go to a shop to buy a sofa and the first one you see is 10,000 dollars. This will become your anchor, and using the power of relativity if the next ones are priced 5,000 & 1,000 dollars, they would look cheap regardless of how much a sofa should actually cost. Now, imagine if the reverse happened and the first one you see is the 1,000 dollars. How would you see the 5,000 and the 10,000 dollars? If you have a shop that sells furniture, put your high priced next to the entrance so it will create mental anchors as customers enter.
Now, let us introduce another idea, Herding. When we see a line in front of a restaurant or a shop, we assume it is a good one and we may stand in line to try it and the line keeps growing by people who thought the same thing. Sometimes, we do another version of herding, Self-Herding. Here, we make our decisions based on our first experience. If it was a good experience, we will do it again and start creating our own mental line. As time goes on, the line gets longer, and we become more fixated on doing that thing.
The idea from these terms, Arbitrary coherence and self-herding is to question whether any of our previous decisions in choosing carea er, partner, eating habits, favorite food, values ,or anything else. Are they a result of arbitrary coherence and a choice we made long time ago and we just kept going on or do they have a solid foundation?
As always, you can improve yourself against such traps, by always questioning yourself, especially in repeated behaviors. Why do I do this? Can it be another way? How did this behavoir begin? Most importantly, we should also think carefully about a decision that we will make for the first time since they will influence our future decisions for a very long time.
The Power of Free
[8:24] Now, I want you to remember whether you have anything that was given for Free to you, fridge stickers, pencils and notebooks from conferences, hotels, workshops, etc. For us, the word FREE is a big hot button for irrational decisions and understandably so. We would grab something labeled free, without sometimes even asking, do I need it? or Whether I want it?
So why Free have such powers over us? Generally, most transactions will have an upside and a downside. However, the moment it becomes free, we think that there is no downside, and we overvalue whatever is offered.
If you have a business, the strategy here is to include an item in your package that is Labelled as free, and it will attract the customers' eyes. If you are a designer, you can offer a basic package with minimal features. Then, offer the second one at a higher price, but mention the word free next to the new features. To increase the success rate, introduce a decoy. If you forget what a decoy is, go back in the episode.
The moral of the story, when possible, try your best to think rationally when seeing the word free.
The Price of Ownership
[9:40] Now, let us move on to a new term, the "Endowment Effect". It says that if we own something, we tend to value it more than how other people do. The owner will probably include some emotional attachment to the item or memories that in his/her mind will inflate the price. When I read this idea, I did a quick experiment. I have a watch that my dad gave it to me around 10 years ago, and it does hold a very special place in my heart. Now, If I absolutely had to sell it, I will price it around 250-350 dollars. So, I asked a group of friends who were around, how much will you be willing to pay for this watch assuming you had all the money in the world? And to no one's surprise, their prices were way too low. It ranged from 15 dollars to 150, with an outlier of 500 dollars, averaging around 140 USD. On a side note, we checked online to see its actual price and it is around 300 dollars. So, firstly, shame on me, and secondly, my new pricing will be 300 plus another 250 for emotional attachment.
To describe our irrationality when it comes to owning stuff, there are 3 reasons. One, we get attached to whatever we have. Two, we focus on what we may lose rather than what we may gain, focusing on the downside rather than the upside. Our fear of losing something we own is a very powerful emotion, and as we will discuss in Win Bigly, fear is among the top persuasion tactics. And the last one is we assume the buyer we see the same emotional value as we see it.
Let us go back to my watch. If I must sell it, I will start to remember when my dad gave it to me, all the good days I had with it. Then, I will start dreading the feeling of not having it and I will probably not think about what I could do with the money if I sold it. And when I meet the buyer, I will tell them that it is my dad's watch and maybe make a scene out of it and expect them to understand me.
This ownership irrationality applies also to our personal beliefs as well. We will keep this for the next episode when we discuss the power of commitment in Influence.
The Effects of Expectations
[11:47] To wrap things up in the money part, let us talk about the effects of expectations and the power of prices on our behaviors.
Let me walk you through an example, let us say I showed you two restaurants’ menus. One had its main dish written as Chicken Fried Rice. The other menu wrote Finest imported rice, topped with Tender pieces of boneless chicken marinated in ginger and garlic, with vibrant caramelized onions and drizzled with rich soy sauce. Now, which one do you think will taste better and be more expensive?
This experiment is to show how our experience of something can highly be effected by our perceived knowledge and expectations before the experience. This falls under what we call "Priming", and it will be a key theme in the last episode when we discuss Pre-Suasion.
The Placebo Effect
[12:40] Now, with the idea of how our experiences can be affected, let us talk about the placebo effect when it comes to both subjective and even objective experiences. Placebo effect in the medical field refers to the improvement that occurs despite using non-effective treatment. If you think about some traditional treatments that have zero ground in science but they seem to be effective every time, well, this can be a placebo effect. In modern history, countless procedures were discovered to have no real medical effect, but they cure patients.
To explore this idea, a famous study was published in 2002 in the New England Journal of Medicine. It had 3 groups of patients with knee problems. One group had the real operation, the second one had similar operation but didn’t do one of the key steps. And the third group had a placebo operation, where the doctors only acted as if they made the operation on the patient, but nothing was done to their knees. The shocking result was that the third group had almost as good as results to the first group, despite virtually doing nothing to their knees.
The placebo effect plays on the power of suggestion and the mechanisms behind it are two, Belief and Conditioning.
Belief or your confidence that a certain action will work and have an effect, will probably result in a change. For example, having a lucky pen or a piece of cloth and believing your grandmother's soup will cure your cold are examples of beliefs that have placebo effects.
As for conditioning, or classic conditioning to be more specific, it is generally associated with Pavlov's experiment. In which a Russian scientist named Pavlov tested the salivation of dogs when they get food in front of them. However, the conditioning part was that as the experiment progressed, the salivation would even start before the food arrives. For example, when they hear the steps of the scientist or the door opening.
For you, if you work in an office, remember when it's the last half an hour before leaving after a hectic day, or when you hear the steps of the pizza delivery in front of your door. Your mind will start producing the chemicals associated with that experience. This can be linked to what Scott Adams calls in his book "The Moist Robot", where it assumes that humans are programmable using the correct methods. Maybe we are. Think about it as we go on with this series.
Let us get back onto track. With what we know about placebo, can we expect a more expensive or premium item to do better than a more generic one of a lower price? Well, experiments show that we will get a better feeling from the same medicine if it is expensive or fully priced rather than it being cheap or at a discount.
So, try to use this placebo and conditioning for your benefit. Have a lucky shirt, so you mind will condition itself to perform at its best when wearing it. Start your morning with your Special routine, that will make your body conditioned to perform. Have a music playlist for only working out or studying, so each time you hear, your body will go into that mode.
Decision Making
[15:50] With relativity and money out of the way, let us move into the third theme, Decision Making. Most of us are familiar with the Hulk. The comics and movies present us with two characters, Dr. Bruce Banner. who is mild and a normal scientist, and the Hulk, who is uncontrollable and wants to destroy everything, both living in the same body. Somehow, these two characters can represent all of us. Dr. Banner is when we are in a neutral state and the Hulk that comes out when we are in an emotional one.
The Procrastination Puzzle
[16:23] This challenge of controlling ourselves in an emotional state relates to a problem that faces all of us, Procrastination. Let me explain. Say, you wanted to start a diet, here you are in a neutral state, with your Dr. Banner in control. That night, a friend brings a chocolate cake that you love. This triggers your emotional state and the Hulk takes control, and you eat it, with the promise that you will start tomorrow.
This happens for all of us, whether it is a new year’s resolution, saving money each month, or my own commitment to read every day. They are broken by some immediate rush to enjoy something over the long-term goal.
One of the best analogies for procrastination was presented by Tim Urban. I will link to his Ted talk which is brilliantly titled "Inside the Mind of a Master Procrastinator". In his talk, he describes that we have two characters in our mind, a rational decision-maker that usually says, “I will do work before the deadline” and an instant gratification monkey that whenever you want to do that work, simply says “Nope, not now”. Go and watch his video after this episode and check his blog “Wait But Why” for amazing quality drawings and articles.
One way to solve procrastination is using pre-commitment mechanisms. The idea here is that we will prevent ourselves from giving the chance to the Hulk to come out and have a fight with him, so you stop the conditions beforehand. For example, if you want to exercise and go to the gym regularly, your pre-commitment can be a group of friends that you go with. Or even taking your gym gear with you so you do not have to stop at home and be tempted to rest.
On money spending and saving, you can make an automation money transfer that cuts a certain percentage to your savings or limit your spending.
With pre-commitment out of the way, we can add layers to our protection against our emotional self. Add a penalty, much better add accountability to it. Going back to the gym example. You have your group of friends who you agreed with that you will go to the gym directly after work. Now, the accountability and the penalty can be that if anyone misses a certain number of days, they will have to treat everyone for lunch on the next day. The same can be done for saving money, tell your friend or loved ones about your saving goal and make a penalty that they can benefit from, so they make sure to check on you. We will explore the power of commitment and social proof in the next episode of Influence.
One last advice on procrastination, try to simplify the process as much as possible.
This idea of facing procrastination is a core theme in building habits. Two amazing books are The Power Habit by Charles Duhigg and Atomic Habits by James Clear, which I am planning to make episodes about in the future. Now, this is my pre-commitment, you guys keep me accounted. As for the penalty, you can suggest it down in the comments.
On Keeping Our Options Open
[19:23] Now, we earlier mentioned how one of the reasons behind the endowment effect was our fear of loss. What if I told you that this fear has a bigger implication and can make us lose focus on what is really important. An example that most of us are familiar with is parents with their kids. They would make them participate in music, sports, writing, arts and all kinds of activities.
So, if you are asking, where is the fear of loss here. Let me explain.
As humans, we have an irrational tendency to keep our options open, and sometimes, keeping all options just for the sake of not losing one of them. Unfortunately, this can end making us lose everything. As for the kids, they may end up experiencing all kinds of activities, but they are mediocre in all. Worst case scenario would be them hating these activities and not gaining anything from it.
Now, I want you to think, where are you keeping too many options and losing something more important in your life?
A solution from my side would be the Pareto principle or 80/20 rule. It says that 80% of the results come from 20% of actions. For you to make a choice, decide what you generally want, look into which 20% can you make achieve them, and eliminate the rest of the options. Is it going to be easy? Not at all, but it will probably be better in the long term.
The last two chapters of the book cover the topic of Ethics, and I'd love to explore them in future episodes with other books, so stay tuned.
Conclusion
[20:53] To wrap things up, Shakespeare wrote "What a piece of work is a man". Whether this was written in admiration or as an ironic comment on humans, I hope that you got a glimpse of how we actually make decisions, irrationally. We think that we the driver in our life road. However, when we deeply examine our life, we will see they are many forces that shape and sometimes force our decision. In reality, there are two steering wheels and ours is not the main one. My hope that now with this knowledge, we can take a second look at our decisions and make them rationally.
For the next episode, we will dive into 6 principles of persuasion and how we’re being tricked on our everyday.
Make sure to check the website at tldr-show.com for the episode notes, show notes, links to social media, and the extra good stuff.
Until next week, be curious, be critical.
Comentarios