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Thursday, June 05, 2008

Rave: Predictably Irrational

Predictably Irrational, by Dan Ariely, is an excellent book to read to learn about "behavioral economics". Many of our rants on this blog deal with similar issues discussed in this book, especially regarding what we have tagged as consumer apathy, marketing and pricing. It turns out that, as consumers, we really do make bad decisions... and businesses KNOW how to MANIPULATE us. Unfortunately, the author suggests that we will make the same mistakes even if we are shown the truth. He uses the example of optical illusions, which still baffle us even when know they are illusions.

I strive to prove the author wrong. I try to make informed and smart purchasing decisions. And this blog will continue to rant about these subjects and point out the illusions as we see them.

One example of how this book helped me to better understand these matters concerns a living room furniture set I purchased a few years ago. I found the process of shopping for furniture to be very frustrating (though ultimately, I only ranted about the delivery service). It was frustrating because, I had no idea what the furniture "should" cost. Why does one sofa cost $1000 more than another? Which will last longer? Which has better quality? Why does the salesperson remind me of a used car salesman?

The book explains that consumers are often very bad at determining what things "should" cost, and are much better at making relative comparisons. I believe the furniture industry makes every attempt to eliminate our ability to make relative comparisons. How? I looked at many sofas at many different stores and I couldn't find the same sofa at two different furniture stores (disregarding chain stores, of course). If you can't find the same model at two different stores, you can't compare costs. And it is practically impossible to identify quality features to compare. In the end I picked the one that felt the most comfortable to sit in. I sure glad it didn't fall apart after 6 months.

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