The irresistible sway of irrational behaviour

When the price of eggs goes up, we eat fewer eggs – just as we eat more when the price goes down. Its simple economics – the elasticity of demand. And if we were behaving rationally, then our consumption would go up or down with the same¬†magnitude¬†given a particular change in price. But it doesn’t.

You are the head of safety at KLM. Last week you just completed a pan-European course on airline safety where you were the trainer. And yet, you disregard basic safety convention to avoid a delay that may look bad on your track record. As a result you ram your jet into another during take off and kill each person on board. 522 in all.

You get into a betting game in a class full of smart, business-savvy professionals. The auction starts at 1 dollar. Whoever wins the auction walks away with a twenty dollars, but whoever has the second highest bid has to fork out the amount of his bid. It would be rational for the bids to never go past twenty dollars. Yet, every time this experiment is run with Harvard b-schoolers, the final bid is well above a hundred. On one occasion it was $204.

You are a trained archeologist. Your approach is scientific, your method is rigorous and your documentation is painstakingly detailed. You are convinced that the missing link between the modern man and the homoerektus lies not in mainland Europe, but in the jungles of the Pacific. You pack up your bags, travel half way across the world with your family in tow, and move into a shack in Indonesia. After months of methodical excavation, you make a monumental discovery. No one in the scientific world believes you, even though your research method is bulletproof.

What do these stories have in common? The fact that irrational behavior tugs at us at the most unexpected time and place.

The first three cases are different manifestations of loss aversion. The fact that we perceive loss much more acutely than gain. Insurance companies have been exploiting this for decades by selling Comprehensive Damage Waivers.

The last example is about the diagnosis bias. If we have made up our mind about something, then mounting evidence to the contrary will not sway us. Scientists in Europe in the 17th century expected the missing link to found in Europe, as that would confirm their conviction that Europe was the birthplace of humanity. No amount of scientific proof could convince them otherwise.

Applying these biases is sometimes essential for us to function as they help us make quick (and sometimes faulty) decisions. But often, as we are sliding down a precipitously irrational slope, its good to know what these biases are so we can quash them if we have to. That’s what this eminently readable book is about: Sway: The Irresistible Pull of Irrational Behavior.

2 thoughts on “The irresistible sway of irrational behaviour

  1. The Jaywalker

    The more I read, the more I forget. The more I implement/ teach/ adapt, the more I remember.

    How’s this book different from Predictably Irrational, if you have read that one?

  2. Adnan

    Jay, haven’t read Predictably Irrational, but it sounds predictably the same. Einstein is believed to have said that reading is for lazy mind, I guess they didn’t have internet or cable tv back then. I think the point is that content consumption is much easier than content creation – and we only really remember stuff that we do, or perhaps what we write about.

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