#65 Dan Ariely

Dan Ariely (@danariely) joined James Altucher to talk about our irrationality, why it might not be a bad thing, and his origin story. The interview begins when James says that “I’m an expert, having been irrational and dishonest most of my life.” His story notwithstanding, he asks Ariely in what ways do we think irrationally?

Ariely begins by saying that our emotions are largely irrational, though not without cause for being so. When you lived in the jungle, heard a rustling in the bushes, and took off because there might be a tiger – that was all rational thinking. Our evolution built in asymmetrical thinking, before someone like Nassim Taleb coined that – or any other words. If this doesn’t make sense, Ariely explains: “The cost of running when there is no tiger is the cost of running. The cost of staying when there is a tiger is a very high cost.” If this resonates with you, then your next book should be Antifragile because this is the essence of Taleb’s argument. Probabilities don’t matter as much as intensities matter. Taleb gives the example of security checks before you get on an airplane. The odds of a terrorist being on that plane and successful crashing it is miniscule. But we still check people because if a terrorist takes over and crashes a plane there is a huge cost. Ariely explains to James that we act emotionally because there was a time when it helped.

Another area Ariely says we don’t understand well is opportunity cost. When he surveyed people at a car dealership, and asked them what they would not be able to buy, if they bought this car, very few understood the nature of the question. Their responses were, that if they bought a Toyota, they wouldn’t be able to buy a Honda. Lulz.

If we were more rational, we would list the things we couldn’t do. If you buy a $40,000 car you are trading away the chance to go on eight Disney cruises with your family of four. That’s the thinking that Ariely was searching for. Luckily for us, there’s a group of people who have found this idea and created an action plan for how we can think about things this way. They call themselves minimalists.

If you read the minimalists at all, you’re familiar with their origin story. Too much stuff was taking away from the things they really wanted to be doing. Then comes the moment lightening strikes – and this happens to every single one. They find out that by giving things up, the gain more. Here’s how Joshua Becker puts it:

Minimalism is about intentionality. It is marked by clarity, purpose, and thoughtfulness . At its core, minimalism is the intentional promotion of the things we most value and the removal of everything that distracts us from it.

The minimalist sees that the garage full of stuff (plus the time it took to work to buy it plus the tie to maintain it plus the time to manage it) isn’t a great bargain at all.

Returning to the interview, Ariely explains that another way we are irrational is that we value things in different ways. His analogy is that if you needed a quarter for parking and I offered to trade you a dollar in quarters for a five dollar bill you’d feel cheated. If, however, I offered to run to the bank and get quarters you would feel less cheated because you also paid for my effort. Your monetary outcome is the same – $1 in quarters for a $5 bill – but there’s something different about the idea.

James brings up the story about a guy who bought stuff online and sold it after creating a story. Ah, Ariely says, you’re talking about Rob Walker.

Walker created the Significant Objects Project. The Idea is this:

A talented, creative writer invents a story about an object. Invested with new significance by this fiction, the object should — according to our hypothesis — acquire not merely subjective but objective value. How to test our theory? Via eBay!

One man’s trash is another mans treasure and when you mix in a story things really change. Walker writes, “We sold $128.74 worth of thrift-store junk for $3,612.51.” For example, this cow plate.

The story begins like this:

As my husband and I were driving back to New York after my mother’s funeral, I spotted a general store on the Rhode Island-Connecticut border, the kind that exist solely for those who forgot to bring something back from Newport or Block Island or Martha’s Vineyard or wherever. Judging from the weathered sign and the rusting trinkets out front, it seemed decades old, and yet I swear I had never seen it in all my travels along this stretch of I-95. Strange.

Ariely says this means that “the consumption equation is very complex.” Think again about the Disney cruise you’re missing because of the new minivan in your driveway. That Disney cruise is a big boat floating around the Caribbean for seven nights and docking at various tropical ports. Royal Caribbean also has a big boat that floats around for seven days and stops at the same beautiful places. Each cruise is the same in almost every way, except price. Some people choose to pay more because they want a better story, a Disney story.

James says that we tell ourselves stories too, noting that “this happened to me. I got wealth in one area of life and invested in the stock market and lost everything.” For Altucher the story he told himself was that if he knew what he was doing in building companies, he knew how to invest in them too. Dubner (episode #20) calls this the halo effect and warns James about it as a bias but notes “it’s ones of the easiest ones to avoid.”

Okay, James says. We know that we are irrational in many areas like emotions, money, and our reliance on stories. How do we become more rational.

You can’t, says Ariely.

What?

“There’s no single answer.” Ariely tells James. Rational thinking requires focused, deep thinking and it’s impossible for us to operate in that mindset throughout the day. Instead, his suggestion is to manipulate things like our environment. For example, “when it comes to temptation…reduce the prevalence of temptation in our lives” Ariely says. I’m a living example of one of his interview examples, cookies. I always tell people that I’m on a one-hour diet a week. If I can not buy cookies at the grocery store during a weekly one-hour trip, I won’t eat the cookies. If those cookies enter our house though, problems ensue.

In their book Switch, Chip and Dan Heath write that we can “shape the path” of our actions and create an easier route to our destination. One of those tweaks is choosing action triggers of when, where, and how we’ll do something. They include this story from the book.

Peter Gollwitzer, a psychologist at New York University, is the pioneer of work in this area. He and colleague Veronika Brand-statter found that action triggers are quite effective in motivating action. In one study, they tracked college students who had the option to earn extra credit in a class by writing a paper about how they spent Christmas Eve. But there was a catch: To earn the credit, they had to submit the paper by December 26. Most students had good intentions of writing the paper, but only 33 percent of them got around to writing and submitting it. Other students in the study were required to set action triggers—to note, in advance, exactly when and where they intended to write the report (for example, “I’ll write this report in my dad’s office on Christmas morning before everyone gets up”). A whopping 75 percent of those students wrote the report.

Knowing when, where, and why you’re going to do something is a good way to shape the path.

Another way to guide our behavior is to hop on the bandwagon that’s full of other people and going where we want to go. Ariel says that “what everybody else is doing is incredibly important.” Famed violinist Joshua Bell participated in this social experiment with the Washington Post where he played for 45 minutes and only a handful of people stopped to listen to the music. One factor wasn’t the business of our lives but that who stops to listen to train station performers. People at a train station have something else to do, to be.

Contrast this with Disney (what’s with all the Disney examples in this post?) where every “street performer” draws crowds of hundreds. Even though the performers at Disney are doing something much less rare than Bell, they draw people in. Remember, Ariely noted that our environment matters too. If you are in a place that facilitates and encourages enjoying entertainment and one where people are showing you what to do, the path toward a certain type of action is quite easy.

At the halfway mark of the interview Ariely starts to tell his origin story. He was severely burned at 18 and while in the hospital he learned that conventional thinking was sometimes wrong. The nurses thought that ripping the bandages off quickly was better for the patient, but from Ariely’s side of the bed it wasn’t.

What Ariely first glimpsed in the hospital and then studied and articulated later on, is that we don’t generally remember our overall experiences. When you go to Disney it’s the special moments you remember and tell your friends back home about those. We remember is the most intense point (high or low) and the ending.

The interview ends with a sort of rapid fire session:

About Happiness: “It’s about a sense of meaning.” Ariely says. There’s no formula for happiness other than finding something you enjoy doing in life. He gives the example of mountain climbing. The actual mountain climbing part probably isn’t all that enjoyable but those people love having climbed. Ten Leonsis (episode #53) told James much the same thing.

About Placebos: Ariel says that placebos are very interesting. When people pay more for a placebo they think it will be more effective. An interesting study from his book is this. He and some colleagues set up a coffee stand outside at a university. They began handing out free coffee to the students and offered an accoutrement of additives; cream, sugar, orange peel, clove, etc. The secret at hand was that sometimes, the accoutrements were in fancy containers, other times they were in styrofoam ones.

What were the results? No, the fancy containers didn’t persuade any of the coffee drinkers to add the odd condiments (I guess we won’t be seeing sweet paprika in coffee anytime soon). But the interesting thing was that when the odd condiments were offered in the fancy containers, the coffee drinkers were much more likely to tell us that they liked the coffee a lot, that they would be willing to pay well for it, and that they would recommend that we should start serving this new blend in the cafeteria. When the coffee ambience looked upscale, in other words, the coffee tasted upscale as well.

About Habits: Make it special. If you want to make flossing a habit think about how important flossing is for you. How bright it makes your teeth. Get a special kind of floss, very soft and white. Light a candle. Play soft jazz. Ariely may not suggest music, but does say to add “ceremonial elements.”

About Honesty: Ariely tells james that we have a tendency to lie and those lies aren’t as white as we think. Most lies are more like grey lies, Ariely suggests, because we get to avoid some discomfort. “Yeah, I don’t see a probably opening a pizza shop that doubles as a barber shop” you’d tell your friend rather than lose some social karma if you tell them how terrible it is.

If you liked the interview with Dan Ariely, you’ll probably like his books as well. You’ll also like Stephen Dubner’s interview (episode #20).

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Mike – @MikeDariano – (559) 464-5393