John’s Blog

Great, fun, behavioral economics book along the same lines as Stumbling Upon Happiness (itself a great, fun book). Ariely goes through a bunch of experiments that show that while people very often behave irrationally (relative to economic models of self-interest & such), most of the time they do it in predictable ways, for predictable reasons — and so he’s really arguing that behavioral economics — theorizing about what people will do based not just on rational analysis, but also based on the rational flaws inherent in communities of people — is a powerful way to model real world phenomena.

Here are a few gems from the book:

“…the sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decision — not at all a reflection of our true preferences or our level of demand.”

That’s in the part of the book that explains why we pay $3.50 for a cup of coffee. 🙂

But more meaningful to me in some of the things I think about lately:

“This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off hte rose — once a social norm is trumped by a market norm — it will rarely return.”

And more succinctly: “Money, as it turns out, is very often the most expensive way to motivate people. Social norms are not only cheaper, but often more effective as well.”

Great book, lots of great stuff in it.

This was a fine book — but not fantastic for me. Reminds me why I mostly don’t read business books. There are some good things to remember in this book — in particular, that models are always simplifications and there are always better models potentially. Moreover, there are often models which are opposed to each other, but still useful to contemplate both. And that some of the most successful organizations not only don’t oversimplify, but they embrace the messiness of real life without getting overcome by it. That’s one of the lessons that’s relevant for Mozilla — when people ask me to draw an org chart or explain exactly how things work, I always grimace. Not because it’s not doable, but because there’s a lot of complexity and nuance that seems non-determinant and arcane to most folks — but much of that nuance is what really makes things go.