As stated in last week's post about 2011 blog strategy resolutions, my goal is to read 26 books in 2011. This week I got off to a great start and finished up my first book, Predictably Irrational by Dan Ariely. It was so good that I had to blog about it (which I'm sure I'll be doing more throughout the year as I make progress towards the ultimate goal of 26 or more).
Have you ever noticed that you typically won't order the most expensive item at a fancy restaurant? You may buy an item just a few dollars cheaper, but going all out and buying the highest priced appetizer, main course or dessert is often too much for us to bear. I read about this little human quirk as I wrapped up Predictably Irrational by Dan Ariely, a thought-provoking look into the world of behavioral economics. Find out about Predictably Irrational, behavioral economics and how restaurant owners use this knowledge against us as they price their menu in today's post.
What is Behavioral Economics?
Dan Ariely is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University. Predictably Irrational, ( an Amazon affiliate link) is a collection of (mostly) his experiments and results in the field of behavioral economics, the study of how we as humans tend to consistently buck the norms of traditional economics' rules of supply and demand in irrational ways.
Why does it seem OK to take a pen home from work but you wouldn't take fifty cents from the petty cash box? Why will we help a friend move for pizza and some Diet Cokes but feel awkward if the payment of cash is involved? This is the invisible hand of behavioral economics at work, and Dan Ariely has the answer to these and many more questions about our irrationalities within Predictably Irrational.
It's All Relative
When you don't know how to place a fair value on something, you look for relative indicators of something's worth, according to Ariely. Think back to the restaurant. When eating out, we typically want something that will be excellent without having to pay top dollar. We reject the top-priced menu item and get instead the second or third most expensive item on the list. Restaurant owners often use this knowledge when arranging their menu so that the second-most expensive item on the list is also the one with the highest profit margins.
Predictably Irrational Marketing
Predictably Irrational is a must-read just for the simple fact that marketers are using this information against you every day. Conversely, if you're a marketer, you've gotta check this stuff out! Take for example Post Rank Analytics' sign-up page (Post Rank is an awesome social media analytics tool that you should check out).
Take a look a the offer below and notice how the Personal account is $15/month whereas the Influencer account is free with a sign-up toPost Rank's PR Connect service. Who in their right mind would want the Personal account when you can get the Influencer account for free, right?
But in reality the Influencer account isn't free because you have to sign up for service and be a part of Post Rank's Connect program. This is a pittance in our minds compared to $15/month so we eagerly enroll in the the program in exchange for our "free" account. The Personal account is a decoy that no doubt boosts enrollments in both Post Rank's Analytics and Connect services through the Influencer account.
Your Thoughts on Predictably Irrational
Have you read Predictably Irrational or any other good reads on behavioral economics? I'd love to include them in my list of 26 books to read for the year. Do you have a favorite study or behavioral quirk? Have you seen an excellent example of marketing via behavioral economics? Share these or other thoughts in comments below.