Monday, January 2, 2012

Predictably Irrational: Chapter 10

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.

Ariely continues to build on the theme about how our expectations shape our experiences. The placebo effect is discussed in detail, as many experiments are cited that demonstrate how the subconscious mind appears to control the body to a great extent.

Ariely's own experiments suggest price contributes greatly to the placebo effect. Patients are much more likely to experience the benefits of treatment (real or placebo) if the treatment is expensive. This creates some interesting questions regarding the cost of health care!

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