Dan Ariely's "Predictably Irrational"

This is a very readable account of some results in behavioural economics. The writing style is both entertaining and informative. The discussion of experiements and their analysis is very accessible. Lots of fun!

I like the fact that this research punches a hole in traditional economics. For example:

So where does this leave us? If we can't rely on the market forces of supply and demand to set optimal market prices, and we can't count on free-market mechanisms to help us maximize our utility, then we may need to look elsewhere. This is especially the case with society's essentials, such as health care, medicine, water, electricity, education, and other critical resources. If you accept the premise that market forces and free markets will not always regulate the market for the best, then you may find yourself among those who believe that the government (we hope a reasonable and thoughtful government) must play a larger role in regulating some market activities, even if this limits free enterprise. Yes, a free market based on supply, demand, and no friction would be ideal if we were truly rational. Yet when we are not rational but irrational, policies should take this important factor into account.

Update 2009mar03: Here's a positive comment about the book by Eric Drexler:

The author of Predictably Irrational, Dan Ariely, is a professor of behavioral economics at Duke University, and he’s written a book about pain, placebos, payment, procrastination, and prices (that’s just the Ps), as well as the necessarily priceless value (and fragility) of key social norms, the special moral psychology of money (but not tokens redeemable for money at the back of the room), and the strange allure of anything FREE! (but not of things that are merely very, very inexpensive). When Ariely speaks of the cost of holding options, he isn’t talking about financial instruments, but about the cost to us all of systematically over-valuing the range of our personal choices — and in his world, this means overvaluing in terms of our own considered values.

Like Nudge, the powerful reality that drives Predictably Irrational is the gap between the behavior of hypothetical highly-informed, fast-calculating rational agents (species homo economicus) and the predictably different behavior of real human beings. And as in Nudge, the focus of the book is on the growing science of human non-rationality, what it can teach us, and how we can use this knowledge to make life better by improving both public policies and the quality of our personal insight.

Update 01apr2009: Here is a video of Dan Ariely giving a talk at the TED conference. This will give you a quick and easy overview of his book.

Update 11feb2010: There is a nice summary of the book in Wikipedia.

Update 1mar2010: Here is a nice review of the book by Cory Doctorow:

Over the weekend, I finally picked up and read Dan Ariely's Predictably Irrational: The Hidden Forces That Shape Our Decisions, an accessible intro to the subject of behavioral economics -- that is, the study of how people behave in the real world and why that varies from the predictions made by classical economic theory (which predicts that people behave rationally and in their own interests). This is a subject I've been very interested in for some years and I'd read and blogged a lot of material about Ariely's work, but somehow never got 'round to reading it for myself.

I'm very glad I did! Ariely's a very engaging writer and a smart social scientist with a knack for illustrating his hypotheses about human behavior through elegant and simple experiments. There's no better time than now to read Predictably Irrational, as Ariely's theories about cheating, incentives, self-fulfilling prophecy, self control, and how we value the things we own versus the things we desire go a long way to explaining the econopocalypse, and also provide an excellent framework for analyzing proposals to get the economy moving again.

Doctorow has more to say, go read his whole posting.