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Dan Ariely is interested in your Social Security number. Purely for research purposes.
Imagine yourself in a class of students. There's Ariely in front of the class with an array of enticements-some bottles of wine, a computer mouse, Belgian chocolates. Ponder those products, he tells you, and write down the last two digits of your Social Security number; that would be 79 for Ariely. Then note, product by product, whether you would be willing to pay $79. Are you craving those chocolates or moved by that mouse? Well, they're all going to be dispersed in an auction. What are they worth to you?
Your ending digits, it turns out, correlate with the size of your bid: If your digits are low, your bid will be low; if your digits are high, your bid will be high. That doesn't mean that as you go through life as a Social Security 79er, you'll always pay more for everything than a 29er. But once $79 becomes a figure of consequence, it becomes the departure point for deciding what you'd be willing to pay. The first decision, then, influences your later decisions. "It turns out that we can push people's willingness to pay up and down quite dramatically," Ariely says, "just by getting them to think about something from a different starting point."
The starting point for understanding Ariely Ph.D. '98 is to know something about the field called behavioral economics-the field in which, at age forty-one, he's already an established star. Ariely returned to Duke last fall from MIT, where he had joint appointments in the program in Media Arts and Sciences, the Sloan School of Management, and the Media Lab (for which he was principal investigator for the "eRationality" group). Beginning this fall, he gives up his "visiting" professorship and becomes James B. Duke Professor of business administration, along with a secondary appointment in economics and an affiliation with the Center for Cognitive Neuroscience.
Ariely defines behavioral economics as driven by "looking at the same questions that standard economics is looking at, but without assuming people are rational." Standard economics is "basically a beautiful, elegant theory that tries to describe everything according to a set of very simple constructs," he says. Behavioral economics is messier. Ariely finds explanatory parallels in the visual illusions that he enjoys sharing with visitors: The individual sees, for example, an upside-down "T" in which the two lines appear to be drawn to different lengths but are measurably identical. The brain, in essence, fills in a pattern that isn't really there.
"It turns out that more of our brain is dedicated to vision than to anything else," Ariely says. "And we practice more vision than we practice anything else. So if we make mistakes in vision, what's the chance that we will not make mistakes in other things that we're not as practiced [in] or designed to do, like financial decision-making and decision-making about our health? The research we've done shows it's very, very low. In fact, we're likely to make repeatable, predictable mistakes in those domains as well."
Some of those domains are familiar-like shopping at Starbucks. As the standard economics model would have it, the coffee-seeking consumer should be asking himself, "Is this the best way to spend $3.50?" But, in Ariely's view, here's the more likely scenario: You have been a Dunkin' Donuts coffee consumer, but you dare to be different, just this once, when you happen to spot a Starbucks. The prices are much higher than what you're used to, but, with all the fancy-sounding brews and the soothing soundtrack, it's obviously not a Dunkin' Donuts environment. So your mind drifts from price comparisons. The next week, you pass by Starbucks again.
"Now, what do you remember from last week? Do you remember how thirsty you were, or how tired you were, or how coffee-deprived you were? Probably not. You take your past decision, you assume it was sensible, and you extrapolate from that your next decision. And the weeks go by, and every time you walk into Starbucks. Over time you stop thinking about whether the price is high or low."
In February, HarperCollins published Ariely's provocatively (and counterintuitively) titled book, Predictably Irrational: The Hidden Forces That Shape Our Decisions. As an engaging account of economics applied to everyday life, it has drawn comparisons, inevitably, to Freakonomics, Stephen Levitt's 2005 publishing sensation. Ariely's website is packed with testimonials from Nobel laureates, corporate leaders, and even celebrity chef Michael Ruhlman '85. Within days of its publication, Predictably Irrational was receiving pleasing attention from some of the key cultural tastemakers: National Public Radio, The New Yorker, and The New York Times. After just a few weeks, it ranked fifth on The New York Times best-seller list.
As often happens in Ariely's world, the experience of seeing the book published has impressed him with the irrationality of the publishing enterprise. Why should an early commitment-signaled by the publisher's advance payment to the author-dictate the scope of the later marketing campaign, even if the eventual book doesn't merit, or doesn't require, much publicity? Why should all books be priced around the same amount, irrespective of quality? For that matter, why should all books pretty much conform to an accepted shape and size?
Ariely had HarperCollins print thirteen different book covers; among other variations, they had a photo of a strikingly handsome model identified as the author, boldly marked the book as a best-seller, cited Ariely alternatively as a Ph.D. and a school principal, and advertised a 75 percent discount. He wanted HarperCollins to print one cover with the imprint of another publisher, but that idea was resisted. With the mock covers in hand, Ariely's team has been surveying Barnes & Noble customers to try to figure out what might inspire them to choose a book with one cover over another.
Ariely's path to publication began in Israel, where he grew up; his last name is a version of the Hebrew term for "lion of God." All through high school, by his own description, he was an indifferent student, sitting in the last row and constantly making jokes. As an eighteen-year-old fulfilling his requirement for military service, he was caught in a life-changing event, an explosion of a cache of magnesium flares. The explosion left him with third-degree burns over 70 percent of his body and brought surgery over a stretch of years. Because his heart and lungs were weakened, some of the surgery proceeded without anesthesia.
Had he been able to anticipate the suffering ahead, he says, he would have been content to die right there. He still has visible scarring, and he still experiences pain every day. He never found out the cause of the accident. It was just one of those things, irrational, and unpredictable. "Sometimes we don't understand the power we harness," he says.
During his long recovery period, he used the time to reflect on his treatment. As he observes in the book, his nurses had theorized that taking off the bandages with "a vigorous tug" was preferable to a slow, drawn-out pull. Ariely's perspective, as a patient, was different. "Their theories gave no consideration to the amount of fear that the patient felt anticipating the treatment; to the difficulties of dealing with fluctuation of pain over time; to the unpredictability of not knowing when the pain will start and ease off; or to the benefits of being comforted with the possibility that the pain would be reduced over time."
Once released from the hospital, he enrolled at Tel Aviv University. He was still heavily bandaged. As he puts it, "I started participating in classes and asking questions for the first time, partly because I felt this was all I had. I was sort of invisible; the only thing you could see was my eyes, and the only way I could portray something about myself was through speaking in class." One of those classes was in brain physiology-an experience that nurtured his interest in devising theories and figuring out ways to test them.
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