Saturday, December 24, 2011

Predictably Irrational: Chapter 5

Dan Ariely is a behavioural economist who refutes the idea that we are fundamentally rational. Through empirical data, experiments and anecdotes, he illustrates that our irrationality can actually be predicted. He then presents ways in which we can make more rational decisions, both as investors and as people.

Our decision-making is also impaired by our emotions. In a series of experiments, Ariely demonstrates that our choices depend on our state of mind. If we're aroused, hungry, angry or undergoing some other, perfectly normal emotion, our line of thinking changes dramatically.

Ariely likens this to the story of Jekyll and Hyde. We are made up of two or more different personalities, and one of our personalities appears incapable of determining what the other personality would do in the same position.

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