>>Dan Ariely: So I want to talk a little bit about irrational
behavior. And I became interested in irrational behavior when I was in the hospital. Many
years ago I was badly burned in an explosion and I -- I was burned in 70 percent of my
body and I spent about three years in hospital. And hospitals are a place where you can observe
lots and lots of irrational behaviors, but for me the most central one was the question
of how to remove bandages from burn patients. So imagine that you had most of your body
covered with burns and the nurses had to take off the bandages and now the question is what
is the right way to do it? You could rip the bandages off quickly, one after the other,
try to minimize the time, but every second is going to be very painful. Or you could
do it very slowly. You could take your time, stretch the time and every second will be
much less painful. So think to yourself what would you prefer?
If you were the patient, how many of you would prefer the quick ripping approach? Raise your
hand. How many would prefer the slow approach?
Okay. So the vast majority of the people think let's go with the quick-ripping approach.
That's what my nurses thought as well. In retrospect I think this is because how they
use to wax their legs. [ Laughter ]
>>Dan Ariely: But in any case they would rip the bandages off quickly and as a patient
I would try to argue with them and I would say let's take some time and don't do it as
fast and give me some time to break. And the nurses said two things. The first
thing they said is that they were correct, they knew what the right answer was.
The second thing they reminded me that the words patient doesn't mean to butt in or suggestions.
This was in Israel, so it was in Hebrew, but it turns out that the word patient, that its
connection with passivity is applicable worldwide. I kept on arguing with them, they kept on
doing what they thought was best. And when I left the hospital and I joined
the university I learned about the experimental method. I learned that sometimes you can take
a problem, you can represent it in the lab, you can try different versions and you could
see what's the correct response. So initially I didn't have much money for
research so I went to hardware store and I bought a carpenter's vise and I studied in
the lab and I invited people to come in and put two fingers in this vise. And I would
slightly crunch their fingers for short duration and long duration, for high intensity, low
intensity, pain that went up, pain that went down, all kinds of versions of pain. And after
each of those I would ask people how painful was this and how painful was that? And if
you had to choose one of the last two, which one would you choose to repeat again?
[ Laughter ] >>Dan Ariely: People gave me their answers
and I tried to understand what controls the interpretation of an experience that evolves
over time and how do we summarize it and how do we create overall evaluation.
I published my first academic paper on this. This was good news. I got more money, I moved
to better equipment. [ Laughter ]
>>Dan Ariely: Noises, electrical shocks. I even designed a suit. This was a suit with
300 feet of hoses that I could get people to be very cold and very hot and I could make
them miserable in both ways. And across all of those experiments I learned
that the nurses were wrong in three ways. First of all, it turns out that if you take
an experience and you make it twice as long, you don't make it twice as bad. You take the
amplitude and you make it worse, now you've really made it worse.
So the nurses were focusing on trying to make the duration shorter. They shouldn't have
cared as much on duration, they shouldn't have sacrificed on the intensity. So they
got things wrong there. The second thing, it turns out that the pain
that starts slow and increases over time is perceived as much worse than pain that starts
high and goes down over time. Mostly for reasons of convenience the nurses started at my legs
and ended at my head giving me the wrong progression of pain over time.
Finally, it turns out that for long periods of pain it's really good to give people a
break, kind of to brace themselves, prepare themselves, get some energy and then deal
with this. And the nurses kind of missed all of those things, and the question is why.
And remember, it's not as if the nurses said "We don't know." No, they had tremendous conviction.
They were following their beliefs in a strong way, nevertheless they were doing things wrong
and not just for me, for every other patient. And the question, of course, was are the nurses
the only people in the world that have wrong intuition? Are the nurses the only people
in the world that have intuition that leads them one way, but in fact reality points in
the other way? So from that point on I became interested
in all kinds of ways our intuition tells us one thing and reality is different.
So I want to show you a couple of those in visual illusions.
If you look at those two tables and I put some lines on these tables and I can ask you
which one of those two dimensions is longer? Is the result of the dimension on the table
on the right or the vertical dimension on table on the left?
If you're like everybody else in the world you probably think the one on the left is
larger, but in fact it's not. If you look at this animation it would prove to you that
those two -- oops. It moved a little bit, but trust me, they are the same. You're welcome
to take the slides later and try it out. And here's another visual illusion.
From these two Towers of Pisa which one looks like it's leaning more to the right? Hopefully
the one on the right. How about now? Hopefully the same thing.
[ Laughter ] >>Dan Ariely: If you look at this patch, what
is the top arrow pointing to, to what kind of color? Brown.
The bottom? Orange. Turns out they're identical.
If I cover the background up, you can see that those two are actually identical.
And there's no trick. You're welcome to the slides and can you do some arts and crafts
and show to yourself and if I take the background away the illusion pops right back up.
And I want to show you one other illusion. In other words Google -- and Google has an
auction mechanism behind it, so I want to talk a little bit about auctions.
I'm going to do an auction here for $100. This is a real 100-dollar bill. Seth from
Intuit will verify this. That's right. So I'm going to do an auction,
it's for real. The winner will win the 100-dollar bill and pay me whatever they bid. Here are
the rules for the auction. First of all, you can't talk. It's a silent
auction. The second thing is that the bid will start
at five dollars and increase by five dollars at a time. It will be five, 10, 15 and so
on. The third rule is the highest bidder will
pay me whatever they bid and get this $100. The last rule is that the second highest bidder
would also pay me what they bid, but they will get nothing.
[ Laughter ] >>Dan Ariely: Are the rules clear?
Okay. If anybody is interested, just raise your hand. Five dollars? Five dollars.
10, 15. 20. 25. 30. 35. 40, 45. 50. 55. 60. 65.
Okay, 65. 65 and 60, right? Oh, 70. 65 and 70. Anybody else?
Okay. Let's stop -- oh, 75. Okay. 80. So we have 75.
The gentleman with 75, would you stand up for a second?
And the gentleman with 80, would you stand up as well?
First of all, let's think about what happened now. We have 75 and 80. If we stop now the
gentleman who said 80 gives me 80 and gets the 100. That's a good deal. The gentleman
-- the other gentleman gives me 75 and gets nothing. That's the rules.
The first thing is I'm ahead, just so we're clear about where we're going.
[ Laughter ] >>Dan Ariely: Here's the thing, the guy with
the 75, you can stop at 75 or go to 85. What do you want to do?
85. Do you want to go to 90? Yes, 90. Do you want to go to 95? Yes. You would go up to
100. Yes. You would go up to 105. Yes. [ Laughter ]
>>Dan Ariely: You want to go to 110, 115. We can continue later, but I wanted to prove
the principle. [ Applause ]
>>Dan Ariely: This is a particular version of an auction called an all-in auction. And
if any of you -- how many of you at some point wanted to raise your hand at bid like when
it was five dollars? How many of you had an itch to do it?
This is a mistake. It means you didn't understand the rules of the game. It means you thought
about one step ahead because one step ahead it looks like a good deal, but eventually
this becomes a really bad deal, and we could have gone on awhile on this thing.
Now, I want to think about visual illusions and about this little auction game as it's
something very basic to human decision making. We have these particular way in which we process
information that is not always accurate, not always rational, not always good for us.
And I want to show you a couple of examples for this in decision making. So this is my
favorite plot in social science. It's a plot that shows the percentage of people in different
countries in Europe who are interesting in giving their organs to donation. And you see
countries on the right that give a lot and countries on the left that give very little.
And when I asked my students why, I say, "Why do you think some countries give a lot and
some countries give a little?" The usual answer is that because of how much people care about
other people in the society. When you give somebody a regular gift you
get to look in their eyes, you get to see the sense of appreciation, reciprocity.
Organ donation not so much. [ Laughter ]
>>Dan Ariely: So why would people give? Presumably how much you care about your society.
But if you look carefully at this plot, you would see that Sweden, for example, gives
86%. Denmark very similar gives four percent. Germany gives 12, Austria gives almost 100.
And one of the most interesting comparisons between the Netherlands and Belgium, similar
countries, Belgium gives a lot, Netherland doesn't give as much. And the Netherlands
got to 28 percent after a huge marketing campaign. They sent everybody in the country a letter
begging them to join the organ donation program. They had television, radio. They actually
had a reality TV show on that as well. With all of these efforts they got to 28%.
So you could say what did Belgium do and how did Belgium get to 98%?
The reality is that all of this difference comes from the way the enrollment form is
phrased. It's not about religion, it's not about belief, it's about the way the enrollment
form is being phrased. And here's the secret. Some countries have
a form that looks like this. "Check the box if you want to participate in the organ donation
program." And what do people do when they see this form?
They do nothing. They don't check and they don't join. These are the countries on the
left. The countries on the right has a slightly
different form. It says "Check the box if you don't want to participate in the organ
donation program." And what do people do when they see this form?
The same thing, they do nothing, but now they join.
[ Laughter ] >>Dan Ariely: And of course, we call this
opt in and opt out, and this is the idea of default and the path of least resistance.
And we all understand the differences are important for small decision, but turns out
the defaults are important for big decisions. Because as decisions become bigger and complex
and more difficult and more important, what happens? We don't know what to do. And when
we don't know what to do we do what? We let the people who designed the interface in which
we make decision or what we call choice architecture, decide for us. So the environment in which
we make decision has a huge effect. I want to tell you one other story about defaults.
There's a big PBM. PBM is a company that sells people medication online. If you got any kind
of long-term disease, you might get your medication every 90 days.
And this particular PBM had the following problem: People got branded medications, and
they wanted to switch people to generic medications. So what did they do? They send people a letter
and they say "Please, please, please move to generic medications. You would save money,
we would save money, your employer would save money."
And what would people do when they get this letter? Absolutely nothing.
So for one year they tried to give people zero co-pay. You didn't even have to pay anything
for this medication. What happens now? Almost nothing.
So they came to a group of us and they say, "Look, people seem to hate generic medications.
We send them letters, we send them postcards, we give them discounts. Nothing seems to be
happening." And we said that's possible, but it's also
possible that people hate doing anything. [ Laughter ]
>>Dan Ariely: If you think about it, their design was that people were going on their
business and they said, please do something different, please do something different.
The fact that people did not do something different, is it because people did not want
the particular offer or wouldn't do anything? So we came up with an idea. We said what if
there was a key intersection when they mail people a letter and they say, "Listen, buddy,
there's no way to do nothing here. You have to return this letter, otherwise your medications
stop." And now you can choose, you want branded at
this price or do you want generic at this price?
What happened? Almost 90% of the people moved to generics.
So what's going on here? Do people like generics or do they like branded?
Turns out that's not really an interesting question. The important question is that people
hate returning letters. That's a much bigger effect.
I want to say one more -- have one more point, which is all of these effects of the decision
environment basically come to the realization because we really don't know our preferences
very well. If you knew that you always want to donate
your organs or you always want to maximize your 401K or whatever it is, the reality is
we don't know our preferences as well as we think we do.
So I just want to give you one demonstration of this. Imagine I asked the people sitting
on my right to write down three reasons why you love your significant other. And I ask
the people sitting on my left to write down 10 reasons why you love your significant other.
And after I gave you some time for this I would ask you how much do you love your significant
other? On a 10-point scale what would you get them for their birthday or anniversary?
How long do you think you will stay together and so on?
Do you think it would matter whether I ask you to think about three reasons or 10? It
shouldn't because I didn't tell you anything new, but it does matter.
So who do you think declared greater love for their significant other? How many people
think that after you thought about three reasons you would declare greater love? A few.
How many people think 10? Okay. And there could be reasons here and
there. With three you could say you focus on the essential. With 10 you could say you
think more broadly. The reality is that it's very, very, very
hard to come up with 10 reasons. [ Laughter ]
>>Dan Ariely: Those are of who have been married longer know what it means.
And it's not only that it's difficult for people to think about 10 reasons, as people
struggle with reason 6, 7, 8, 9 and 10 they say to themselves "How much possibly can I
love this person?" [ Laughter ]
The same thing works for BMW's. It turns out there are no 10 reasons to buy BMW's.
I also use this trick in teaching. The last day of the semester we ask the students to
do class evaluations and the dean like to see high teaching ratings. So just before
the students submit their evaluations, I ask them to think about 15 ways in which this
class could be improved. Presumably 15 are too many. They run out. I get good grading.
[ Laughter ] >>Dan Ariely: I want to end with one final
thought, which is, you know, I started telling you a little bit about the nurses and hospital
and how the nurses were wrong. After I finished much of this research I went
back to hospital and I gave a lecture to my nurses and doctors, I've given lots of talks
in hospitals since. And my favorite nurse actually came to me
after the lecture and she said that I did not think about her pain. She said what about
her pain? She was removing my bandages. This was no picnic for her either.
And of course, we agreed this was no picnic for her either, but we also agreed that the
goal of medical treatment is not to minimize the nurse's pain.
[ Laughter ] >>Dan Ariely: And then I asked her why didn't
you just try it my way a little bit? And the way she described it was that everyday she
was standing in a junction, she could do what she thought was good for me, which was the
quick-ripping approach and what she thought was good for her, or she could try something
she didn't try before, that she thought was not good for me and she thought was not good
for her. And this lack of willingness to try something
different is what's really caused that bad decision to repeat itself over and over and
over. And for me this is actually the most important
lesson from behavioral economics and I think much of social science.
In life we act a lot based on our intuitions, we have an idea of how the world works, but
the reality is if we took a step back and we say under what conditions is this really
just intuition or do we really know what we're doing for sure?
And if we had a little bit more humility, a little bit certainty in what we're doing,
maybe we would follow our intuition a little less, try more different things, experiment
and hopefully get to a better results. And thank you very much.
[ Applause ]