- Insight: Because of the endowment effect and loss aversion we commonly overvalue what we own. Losses are psychologically painful and we need greater incentives to give things up.
The Upside of Irrationality
by Dan Ariely
Published date: 2010
Category: Reference
Index Topics & Notes
- Definition: A process where initial positive and negative perceptions fade, and emotions level out.
- Example: A new house or things become old quickly, as we adapt to having them around us.
- Reference: Leif Nelson & Tom Meyvis: series of experiments on how disruptions affect hedonic adaptation. Their results suggested that people suffer less when they do not disrupt bad experiences, and enjoy pleasurable experiences more when they break them up.
- Insight: Humans can conceive of a future, but we cannot accurately predict how we will respond to it.
- Insight: In moments of pain or loss, it is difficult to imagine that we can adapt to injuries or a new lifestyle, or that we might find joy in that new situation.
- Insight: Adaptation can cause problems for effective decision making, because it hard to predict how we will adapt.
- Insight: Over time, we tend to not be as happy or as sad as we thought we'd be when good or bad things happen to us.
- Insight: As consumers we tend to escalate purchases, hoping that new or bigger things will make us happier, but the buzz wears off.
- Principle: Space out pleasurable experiences.
- Definition: Overvaluation resulting from labour.
- Insight: Ask customers for too much effort and you might drive them away, too little and you lose the opportunity to build attachment.
- Insight: More effort does increase attachment, but only when the effort leads to completion.
- Insight: When we make physical things ourselves we value them more. The same is true of ideas.
- Insight: We believe our own ideas and creations are more important that similar creations and ideas from other people.
- Definition: Generally we want to keep things as they are.
- Insight: Change is seen as difficult and painful.
- Insight: We fall victim to the Sunk cost Fallacy whenever we are reluctant to write off past efforts, and change direction or a decision even when we know it is better to do so.
- Insight: Incentives can be a double edged sword - they can motivate us to a cetain point - beyond which the pressure becomes too much and becomes a distraction.
- Insight: Generally, the inverse-U relationship between stress and performance of the Yerkes-Dodson Law holds.
- Insight: Additional factors on the relationship between stress and performance include (1) the difficulty of the task (2) how easily someone becomes stressed (3) how much experience someone has with a particular tasks (prior knowledge about how much effort is required).
- Reference: Yerkes and Dodson performed experiments on rats to find out (1) how fast they could learn (2) what intensity of electric shocks would motivate them to learn fastest.
- Reference: Yerkes and Dodson found that low intensity shocks did not motivate rats, medium shocks motivated them to learn, very high intensity shocks caused the rats to perform worse as they could not focus from fear.