Irrational Behavior

[sap483]

So I started reading this book titled "Sway: The Irresistable Pull of Irrational Behavior" today that discussed why seemingly logical people can throw away all of their logic and reason and do something extremely irrational. It discusses psychological sways that trigger this behavior. I am about half way through, and am fascinated by the examples they authors have provided.

One of the triggers they discuss is aversion to loss. They state that human beings are more impacted by negative feelings associate with loss than they are by positive feelings associated with gains. As a result, they will go to great lengths to avoid loss. They provide some great examples. I won't go into all of them unless someone really wants to hear them, but one of them that I know I've fallen victim to is flat rate billing on telephone lines or internet. Their example is that although many people would be far better off paying by the minute, most sign up for a flat rate billing plan if available because they fear the huge phone bill that comes with going over in minutes. They would rather pay for more than they need than face the potential loss.

My question to you is, do you agree with the theory that generally speaking, we are more impacted by loss than gain? Has this ever resulted in any irrational behavior on your part?

 

[that_someone_special]

Absolutely.

Think back to high school. You get your paper back and there is a red mark on it. Now me, personally would be upset over that one red mark (I''m so dumb, how could I forget that, why did I do that) even though the paper was an A- (or whatever). We remember the negative way longer than the positive- even if the positive out-weigh the negative- it just has a larger impact on us.

 

[Italiahaircolor]

Date: 8/28/2009 2:33:46 PM
Author:sap483
So I started reading this book titled ''Sway: The Irresistable Pull of Irrational Behavior'' today that discussed why seemingly logical people can throw away all of their logic and reason and do something extremely irrational. It discusses psychological sways that trigger this behavior. I am about half way through, and am fascinated by the examples they authors have provided.

One of the triggers they discuss is aversion to loss. They state that human beings are more impacted by negative feelings associate with loss than they are by positive feelings associated with gains. As a result, they will go to great lengths to avoid loss. They provide some great examples. I won''t go into all of them unless someone really wants to hear them, but one of them that I know I''ve fallen victim to is flat rate billing on telephone lines or internet. Their example is that although many people would be far better off paying by the minute, most sign up for a flat rate billing plan if available because they fear the huge phone bill that comes with going over in minutes. They would rather pay for more than they need than face the potential loss.

My question to you is, do you agree with the theory that generally speaking, we are more impacted by loss than gain? Has this ever resulted in any irrational behavior on your part?

I remember back when internet phones were first coming out and you had to pay per minute...I didn''t know this (being 18 an all) and never properly signed off AIM. When our bill came...lets just say a big bill caused by going over my minutes isn''t so irrational. But I see the point and it''s very interesting...

 

[joelly]

For me, I think it comes from having a tendency of being a perfectionist. I find myself always look for perfection, so when I make mistakes I feel so bad about it and even I wrote down all my mistakes in order for me not to repeat it again. But I have lots of accomplishment too that I take for granted.

It is weird. I''m gonna find this book and read it myself.

 

[joelly]

I just remember something. I feel like if my mom couldn''t make it to my wedding (reason: she lives 10K miles away) then it won''t be a happy day for me. Shouldn''t I just able to enjoy my wedding day even if my family (who lives 10K miles away) couldn''t come? I''m just thinking.

 

[tlh]

Date: 8/28/2009 2:47:23 PM
Author: Italiahaircolor

Date: 8/28/2009 2:33:46 PM
Author:sap483
So I started reading this book titled ''Sway: The Irresistable Pull of Irrational Behavior'' today that discussed why seemingly logical people can throw away all of their logic and reason and do something extremely irrational. It discusses psychological sways that trigger this behavior. I am about half way through, and am fascinated by the examples they authors have provided.

One of the triggers they discuss is aversion to loss. They state that human beings are more impacted by negative feelings associate with loss than they are by positive feelings associated with gains. As a result, they will go to great lengths to avoid loss. They provide some great examples. I won''t go into all of them unless someone really wants to hear them, but one of them that I know I''ve fallen victim to is flat rate billing on telephone lines or internet. Their example is that although many people would be far better off paying by the minute, most sign up for a flat rate billing plan if available because they fear the huge phone bill that comes with going over in minutes. They would rather pay for more than they need than face the potential loss.

My question to you is, do you agree with the theory that generally speaking, we are more impacted by loss than gain? Has this ever resulted in any irrational behavior on your part?

I remember back when internet phones were first coming out and you had to pay per minute...I didn''t know this (being 18 an all) and never properly signed off AIM. When our bill came...lets just say a big bill caused by going over my minutes isn''t so irrational. But I see the point and it''s very interesting...

I agree... going over in minutes and having to deal with the hassle, as I was told I had a "no minute charge to in network customer plan" when the update was never made was such a bother. The fact the employee never made the change, and the time and energy trying to keep track... BLEH. Honestly, I just find that spending extra for something I may not need, but having the freedom not to stress about tracking mine and everyone else''s minutes on the family plan to be PRICELESS!

 

[sap483]

Swedish Bean- I was like that in college too. In fact I do that in my career now too; I instantly focus in on criticism and don''t pay that much attention to the praise. I''m definitely doing myself a disservice.

Italia/Tlh - Agreed. I''ve been there too and it''s such a hassle- but is it truly worth it for the masses- I don''t know. This was just one of the examples that I chose because it relates to something we may all have experienced.

Joelly- Yes, it''s definitely worth reading the book. While I''m not fully through it yet, it''s made me think about my behavior differently, which I really appreciate.

Here''s another really interesting example. Apparently there''s a professor in the Harvard MBA program that begins his class each semester by auctioning off a $20 bill. The students can bid on it in $1 increments. Here''s the catch, while the winner gets the bill for whatever s/he bids at, the second place bidder must also pay that sum but doesn''t get anything in return. So, everyone starts bidding, and usually when it gets to the $12-$16 range, everyone but the first and second place bidder drops out. They then realize the situation they are in and start out-bidding each out - it has gone as high as $204 dollars. It has never stopped below $20 in the many years that he has done this. The bidders are risk averse and even though logic would dictate that they stop before the price gets higher than the prize is worth, no one wants to spend the money and not get anything in return. This also goes along with one of the other "sways" which is committment. This one states that when someone has so much vested in a certain course of action, it becomes very difficult to change direction even when we recognize that the odds of failure are almost certain. Coupled with loss aversion, they say that the sway of continuing on with "irrational" behavior is quite strong.

 

[joflier]

Date: 8/28/2009 5:22:31 PM
Author: sap483
Swedish Bean- I was like that in college too. In fact I do that in my career now too; I instantly focus in on criticism and don''t pay that much attention to the praise. I''m definitely doing myself a disservice.

Italia/Tlh - Agreed. I''ve been there too and it''s such a hassle- but is it truly worth it for the masses- I don''t know. This was just one of the examples that I chose because it relates to something we may all have experienced.

Joelly- Yes, it''s definitely worth reading the book. While I''m not fully through it yet, it''s made me think about my behavior differently, which I really appreciate.

Here''s another really interesting example. Apparently there''s a professor in the Harvard MBA program that begins his class each semester by auctioning off a $20 bill. The students can bid on it in $1 increments. Here''s the catch, while the winner gets the bill for whatever s/he bids at, the second place bidder must also pay that sum but doesn''t get anything in return. So, everyone starts bidding, and usually when it gets to the $12-$16 range, everyone but the first and second place bidder drops out. They then realize the situation they are in and start out-bidding each out - it has gone as high as $204 dollars. It has never stopped below $20 in the many years that he has done this. The bidders are risk averse and even though logic would dictate that they stop before the price gets higher than the prize is worth, no one wants to spend the money and not get anything in return. This also goes along with one of the other ''sways'' which is committment. This one states that when someone has so much vested in a certain course of action, it becomes very difficult to change direction even when we recognize that the odds of failure are almost certain. Coupled with loss aversion, they say that the sway of continuing on with ''irrational'' behavior is quite strong.

Ebay bidding comes to mind.

How many times have I sworn I wasn''t gonna pay a dime over $xx.xx?!

 

[JulieN]

People always take the loss worse than a gain of equal size.

Irrational behaviour is not uncommon. The idea that people make rational decisions is wrong, but it makes studying economics a lot easier.

 

[Steel]

Thak you for posting this sap. Very interesting.

 

[radiantquest]

I read that book too. The first example the author writes about is the one that awed me. The one where the college professor does an auction for a $20 bill. The students end up paying close to a hundred dollars for it just so they don''t lose. It is insane and I know that it happens all the time.