We think we make logical decisions when purchasing products, choosing a mate or deciding whether or not to cheat. Dan Ariely has some experiments that will make you question just how rational you are.
Dan Ariely is the author of the playfully eye-opening book Predictably Irrational: The Hidden Forces that Shape our Decisions. This month, Dan spoke with the Marketing Subgroup of the Bootstrap Network. Brian Massey of Conversion Sciences led the discussion and the entire interview is available at via the Boot Rap Podcast.
Ariely makes no bones about turning long-held beliefs on their head. For example, the Law of Supply and Demand, is a principle as important to economics as Newtonian physics. But, it turns out that we are heavily influenced by "anchors," or prices that arbitrarily influence how much we would pay for an item. Ariely tells us about an experiment he conducts in which the last two numbers of the test subjects' Social Security Number -- a truly arbitrary number -- establish the value of items when bidding in an auction.
Brian questions Dan about the value of "free" in influencing behavior. Dan demonstrates that "free" is the Kryptonite that cripples our decision-making no matter how rational we think we are. It turns out that the difference between $.01 and $.02 is small, but the difference between $.01 and free is huge to us.
This discussion of "free" leads us to talk about the "freemium" models that many Web 2.0 entrepreneurs are using to grow their online audience. Ariely recommends discounted trials instead of these free + premium service levels. Once free is introduced, he argues, that's its perceived value.
Ariely discusses his experiments on how we value what we own over what we don't, demonstrates that our level of satisfaction with a purchase is directly tied to our expectations, and uncovers how an expensive brand of aspirin will make us feel better than the same aspirin at a lower price.
There are no sacred cows in Ariely's presentation. He takes on our tendency to cheat when money is involved and the way we our decisions change when we're sexually aroused.
If your curiosity is aroused, expect to be satisfied by the audio of this interview, especially since the price is right: free.
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Visit Dan Ariely's Blog and Sign Up to participate in his ongoing experiments at http://www.predictablyirrational.com.