Tough to pick a category for this review, but I think Young Dreamers have the most to gain from it.
This looks like a vegetable book (nutritious "good for you" reading) but instead of Brussels sprouts I unexpectedly discovered chocolate-chip fudge brownie ice cream.
The more I learn about investing, the more I need to learn about investor psychology-- and these studies explain why we're so good at creating cognitive dissonance.
The author's an MIT professor at their Sloan School of Management, where he studies "behavioral economics". His unique contribution to explaining what people already know is designing the experiments to isolate the factors causing the behavior. It's as entertaining to read about the experiments as it is to analyze their findings.
In the first chapter, he explains that value & price are relative. We don't know what we want until it's compared to something else, and we don't know how much to pay for it until we learn what our wife's brother-in-law paid. We claim to know that we can't compare apples to oranges, but we think we can compare them both to a rotten apple. Our irrational assessments have spawned a whole field of extremely pragmatic marketing. Restaurants raise revenue by adding a dish so expensive that no one will order it... but customers will happily order the "value" dish that's been re-priced at just $5 less, even if that's more than they paid last month for the same food. Salesmen & realtors know to offer "decoy" appliances or houses to steer their clients into buying other (overpriced) merchandise. There's a whole chapter on how we're led astray by the "FREE!" offer.
One solution to relative thinking is to consider the pricing difference in terms of percentages-- or in terms of how many hours you'd have to work to afford the "difference". You have to get your own data-- step outside the parameters you've been given and look at other comparisons.
The author continues with other examples-- rationalizing purchase decisions (whether they were good decisions or not), anchoring prices, and making the same repetitive decisions even for different situations. He also explores the difference between a social norm (asking a neighbor to help move furniture) and a market norm (hiring a moving company). Companies go to great lengths to establish social norms with their customers ("You're in good hands!") and their employees ("Great benefits!") but they fail to appreciate the hostile backlash that can result when they ditch the social norm in favor of business constraints. ("Thank you for holding. Your call is important to us, and will be answered by the next available script reader in approximately... 30... minutes.") People (and businesses) have to carefully consider which relationship they want to establish, and then they have to be aware that they change the terms at great peril.
He has a very illuminating study of what guys are thinking when they're sexually aroused. Of course we all know the answer ("They're not!") but it's frightening to see how quickly the morals & standards evaporate. I'm not quite sure that our teen is ready to read the gory details, but she's certainly going to need to know about the effect.
Finally, the author explains why it's easier to steal office supplies (or to backdate executive stock options) than it is to rob banks, and why we order a brand of beer that we really don't want in the first place.
He makes boring topics interesting while poking a lot of fun at MIT, professors, researchers, students, and other Ivy League schools.
The truly rational consumer will, of course, borrow it from the library instead of paying actual money. Experts should buy it on their expense accounts and then read it during working hours. Regardless of your technique, read it before you make a major purchase-- or before you order a restaurant meal in front of your friends.
This looks like a vegetable book (nutritious "good for you" reading) but instead of Brussels sprouts I unexpectedly discovered chocolate-chip fudge brownie ice cream.
The more I learn about investing, the more I need to learn about investor psychology-- and these studies explain why we're so good at creating cognitive dissonance.
The author's an MIT professor at their Sloan School of Management, where he studies "behavioral economics". His unique contribution to explaining what people already know is designing the experiments to isolate the factors causing the behavior. It's as entertaining to read about the experiments as it is to analyze their findings.
In the first chapter, he explains that value & price are relative. We don't know what we want until it's compared to something else, and we don't know how much to pay for it until we learn what our wife's brother-in-law paid. We claim to know that we can't compare apples to oranges, but we think we can compare them both to a rotten apple. Our irrational assessments have spawned a whole field of extremely pragmatic marketing. Restaurants raise revenue by adding a dish so expensive that no one will order it... but customers will happily order the "value" dish that's been re-priced at just $5 less, even if that's more than they paid last month for the same food. Salesmen & realtors know to offer "decoy" appliances or houses to steer their clients into buying other (overpriced) merchandise. There's a whole chapter on how we're led astray by the "FREE!" offer.
One solution to relative thinking is to consider the pricing difference in terms of percentages-- or in terms of how many hours you'd have to work to afford the "difference". You have to get your own data-- step outside the parameters you've been given and look at other comparisons.
The author continues with other examples-- rationalizing purchase decisions (whether they were good decisions or not), anchoring prices, and making the same repetitive decisions even for different situations. He also explores the difference between a social norm (asking a neighbor to help move furniture) and a market norm (hiring a moving company). Companies go to great lengths to establish social norms with their customers ("You're in good hands!") and their employees ("Great benefits!") but they fail to appreciate the hostile backlash that can result when they ditch the social norm in favor of business constraints. ("Thank you for holding. Your call is important to us, and will be answered by the next available script reader in approximately... 30... minutes.") People (and businesses) have to carefully consider which relationship they want to establish, and then they have to be aware that they change the terms at great peril.
He has a very illuminating study of what guys are thinking when they're sexually aroused. Of course we all know the answer ("They're not!") but it's frightening to see how quickly the morals & standards evaporate. I'm not quite sure that our teen is ready to read the gory details, but she's certainly going to need to know about the effect.
Finally, the author explains why it's easier to steal office supplies (or to backdate executive stock options) than it is to rob banks, and why we order a brand of beer that we really don't want in the first place.
He makes boring topics interesting while poking a lot of fun at MIT, professors, researchers, students, and other Ivy League schools.
The truly rational consumer will, of course, borrow it from the library instead of paying actual money. Experts should buy it on their expense accounts and then read it during working hours. Regardless of your technique, read it before you make a major purchase-- or before you order a restaurant meal in front of your friends.
At least I should get it before Ha.
