Now Why Did I Decide THAT?

Dan Ariely, professor of Psychology and Behavioral Economics at Duke University,  and my instructor for the online Coursera class I'm taking, says there are three main lessons of behavioral economics – lessons that can be applied to both our business and personal lives:

1. We have many decision biases.
2. Our intuitions are often wrong, and we don’t recognize our faults in making decisions.
3. We need to rely on empirical evidence to accurately analyze our behavior (which is what he’s been doing for us all).

Here are some things I found interesting from my first week of the course:

• People take the path of least resistance consistently and defaults can be used effectively in situations where change is needed. (A good example of this is that countries that make becoming an organ donor the default on their forms, as opposed to a choice, have many more organ donors.)
• More choice is not always better. Choosing from three choices is easier than from among many choices.
• A change in momentary mindset can have a significant long-term effect.
• The first option becomes the framework for evaluating other options.
• People follow the self-herding model: we are immensely influenced by our past decisions. Since we remember our actions far better than our transient emotional states, we have a strong tendency to follow the same past decisions – whether they were the right ones or not.
• The exact same experience can be regarded as good or bad, depending on how it's framed.
• Determinations of value are influenced by arbitrary numbers. Once a particular number and/or a product is introduced a certain way, it becomes a permanent point of reference, i.e., the anchor from which future prices are judged and by which future decisions are made.