by DG Martin

CHAPEL HILL — Last week, The New York Times released its list of “100 notable” books of 2008.
Two North Carolina books made the list.

Want to guess which ones?

If you keep up with North Carolina literature (or if you are a regular reader of this column), you might guess that one of these books is Tony Earley’s novel “Blue Star,” the sequel to the acclaimed “Jim the Boy.” These two novels set in the North Carolina foothills during the time before World War II have captured the hearts of readers across the country.

So if you guessed “The Blue Star,” you get a gold star.

But I bet you a nickel that you will not be able to guess the second one—unless you keep up with the popular books that try to explain to laymen how people make decisions. Some people read such books to learn how they can make better decisions. Others want to learn how they can exploit the imperfect decision making of consumers or potential business associates. They want to learn more “sales gimmicks.”

Okay, here is the book: “Predictably Irrational: The Hidden Forces That Shape Our Decisions.” The author is Dan Ariely, James B. Duke Professor of Behavioral Economics at Duke University.

The book’s title is a good summary of Ariely’s main point: Many important decisions we make every day are not based on a rational determination of what is best for us from an economic viewpoint.

There are two important consequences. First, we often do a terrible job in taking care of ourselves economically. Second, the conclusions that economists make based on a “perfect” marketplace composed of rational decision makers can be very wrong.

 “Predictably Irrational” is full of entertaining examples designed to prove Ariely’s point.

One of our irrational traits shows up when we are tricked into making an irrational price comparison. For instance, when Williams-Sonoma first introduced an upscale bread maker priced at $275, it bombed. But when it developed an additional model priced even higher, the first model became a sales success. Why? Ariely explains, “Simply because consumers now had two models to chose from” and they would say, “’Well, I don’t know much about bread makers, but…I’d rather have the smaller one for less money.’ And that’s when bread makers began to fly off the shelves.” 

Ariely uses an example from Duke to show more irrationality in the marketplace. The valuation of property, he asserts, is irrationally influenced by the tendency of its owner of something to value it too high. For instance, you might expect that the value of a Duke basketball ticket would be about the same to all the student fanatics who wait outside for days just for the chance to participate in a ticket lottery. Whether they won a ticket or not should not affect the value they place on it-- in a rational or perfect market.

Ariely found, however, the students who won the tickets came to assign a much greater value than the losers. The most that the losers would pay for the ticket was about $175. The winners would take no less than $2000 to sell the same ticket. This owner “overvaluation” is just one more distortion to the perfect marketplace. (Another explanation: Duke students are greedy enough, but too poor to pay a fair market price.)

Because “Predictably Irrational” shows so many ways we fail to make rational choices, it can serve a very effective “self help” guide.