Summary

Humans are systematically irrational in predictable ways that traditional economics ignores. Relativity drives decisions more than absolute value – we need comparisons, and marketers exploit this with decoys. Free triggers an irrational emotional response that distorts cost-benefit analysis. Social norms + market norms are incompatible systems – introducing money into social exchanges destroys goodwill. Expectations shape experience literally. Ownership inflates perceived value, options paralyze us, and arousal transforms our preferences.

Key Takeaways

Notes

1: The truth about relativity

• Everything is relative
• Decoy effect: weaponized relativity bias
• Comparison: wife’s sister’s husband
• Relativity of discount to price
• Relativity of comparison to others

2: The fallacy of supply and demand

• Anchoring effect
• First impressions stick
• ↑ preferences and perspectives stick
  • “The good old days”
• Herding, self-herding
• Avoid undesired comparisons, anchors
• Poetry reading anchor: pay vs paid
• Arbitrary coherence: we are a random walk
• Supply and demand are not independent

3: The cost of zero cost

• Preference for free: loss aversion
• “Free”: magnitudes better than almost free

4: The cost of social norms

• Social norms vs market norms
• Frame ask as social norm for better results, more generosity, cooperation, altruism
• Treat customers socially
• Corporate loyalty: employee social norms
• Bring back social norms in everyday life

5: The influence of arousal

• Inability to understand ourselves in different emotional states
• Two selves

6: The problem of procrastination

• Paper deadlines: no procrastination is best
• Need skin in the game

7: The high price of ownership

• Endowment effect:
• Duke bball ticket: $170 buy vs $2400 sell
• IKEA effect: instill a sense of ownership

8: Keeping doors open

• Loss aversion
• Tendency to keep options open for too long
• Solution: start closing doors

9: The effect of expectations

• Expectations influence experience
• Halo effect: presentation is important
• Brand, marketing, stereotypes
• Can prime with unrelated info (anchoring)
• Outsider view: strip away preconceptions

10: The power of price

• Placebo effect
• Expectation, conditioning

11: Why we are dishonest

• HBS test study: majority cheat a little
• Honesty is a deeply rooted virtue
• Rational: cost-benefit analysis
• Superego: only applies to larger dishonesty
• Study: recalling the Bible increases honesty
• Religion, ethical vows increase honesty
• Trust, honesty is essential for business

12: Why cash makes us more honest

• Study: 2x more likely to steal when not cash

13: Beer and free lunches

• Study: happier when ordering anonymously vs sequential public ordering (except first)
• Cultural norms: uniqueness vs belonging