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Dissecting People's 'Predictably Irrational' Behavior

Feb 21, 2008 (All Things Considered)

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As a behavioral economist, Dan Ariely studies the way people make economic decisions.

His conclusion? We don't do it the way economists typically say we do.

Instead, he finds, humans are "predictably irrational," which is also the title of his latest book.

Predictably Irrational explains how the reasoning behind those decisions is often flawed because of the invisible forces at work in people's brains: emotions, expectations and social norms.

"Our willingness to pay, it turns out, is not just a function of the utility of the pleasure that we expect to get from [the item], it's also influenced by all kinds of irrelevant factors that change our psychology but not our economic reasoning," Ariely says.

Ariely is on the faculty of the Massachusetts Institute of Technology; he's currently on leave and teaching at Duke University.

He talks to Robert Siegel about his experiments, which involve activities such as mock auctions, trick-or-treating and selling chocolate to college students. He also explains how he discovered that the "allure of free" tempts people to give up something better and why behavioral economics is important for policymaking.

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Read an excerpt from the book about what happens when social norms collide with market norms.

More from the Interview

When Dan Ariely was 18, an explosion — of a large magnesium flare — left 70 percent of his body covered with third-degree burns. He spent three years in an Israeli burn unit.

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