I really enjoyed this book because it overlays behavioral economics on top of theoretical economics (I majored in Economics in college…). We all understand the concept of supply and demand; but behavioral economics is the study of why people DON’T buy more of a product when the price goes down, for example. In a vacuum, theoretical economics works great, but who lives in a vacuum? There are so many factors that influence our decision-making process.
The book contains fifteen chapters and each chapter tries to answer a specific question through a few of Ariely’s social experiments and then comes full-circle with real world applications.
Chapter IV – The Cost of Social Norms: Why We Are Happy to Do Things, but Not When We Are Paid to Do them. Who can relate to this? My husband and I often open our home to our friends to socialize and we both cook a nice meal for all of them. This is a social norm; however, if one of our friends were to view the gathering in the context of market norms, they would try to offer us money to offset the cost of the meal and our time spent preparing it. My husband and I would feel a bit awkward. Ariely goes on to explain that it may be more impactful to reward employees with gifts for performance rather than money…see the connection?
If you’re interested in understanding why we, as consumers, make the decisions that we do, this book is a must-read. I’ve already applied concepts from this book to a few of the strategies I’m asking my Clients to employ. Great real world applications…
What’s the last business book you read? Do you have a favorite author?