Ford originally instructed its customers to have their cars serviced and parts replaced when needed, which was technically correct but confusing (because some service was needed at 10,000 miles and others at 15,000, etc.). As investors, our lack of self-control can lead us to misguided investment decisions, such as changing our portfolios too frequently or spending instead of saving.Įase is also important, as Ariely demonstrates in his Ford/Honda service case example. For example, we tend to procrastinate less if our deadlines are clear and we know them in advance.Ĭomplete flexibility doesn’t seem to help, but being able to set our own deadlines does. As Ariely puts it, “resisting temptation and instilling self-control are general human goals, and repeatedly failing to achieve them is a source of much of our misery.” The good news is there are tools we can use to help us better manage our impulses. While Ariely catalogs a host of hidden forces that affect our day-to-day decision-making, the following three have important implications for investors: 1. THREE HIDDEN FORCES INVESTORS SHOULD KNOW Ultimately, these shortcuts or hidden forces are necessary in helping us navigate our lives, but they can lead us astray. Finally, because we don’t always have the time or energy to consider situations analytically, we often let our emotions guide our decisions and behavior.

Additionally, because we tend to be very social creatures by design, the decisions of others often strongly influence our thinking, either consciously or subconsciously. Our brains have evolved to seek “shortcuts” that reduce effort, and as such, we rely heavily on habits and intuition to reduce our cognitive workload. These mental shortcuts, which Ariely calls “hidden forces,” help to simplify things so we don’t have to spend endless amounts of time analyzing every detail.īehavioral scientists have documented hundreds of heuristics that influence human decision-making, many of which are deeply rooted in our DNA.

In order to cope and speed up the decision-making process, the brain relies on heuristics. If we tried to analyze every single aspect of every situation or decision, we’d never get anything done.

We’re confronted by a tremendous amount of information daily, yet our brains are only capable of processing a certain amount. Understanding why we’re predictably irrational, and recognizing the patterns, provides a starting point for improving our decision-making. They’re systematic and predictable – making us predictably irrational. But are we? In Predictably Irrational, behavioral economist Dan Ariely asserts that we’re far less rational than standard economic theory assumes and refutes the common assumption that we behave in fundamentally rational ways.Īccording to Ariely, our behaviors aren’t random. When it comes to making decisions, we think we’re making rational choices.

Predictably Irrational by Dan Ariely