Predictably Irrational was written by Dan Ariely. It is a relatively short look at microeconomic and human behavior that just doesn’t seem to make sense on the surface, but can be easily explained once you dig a little deeper. This book is one of my favorites this year. As a marketer, I specifically enjoyed his theory on decoy pricing. Decoy pricing is the practice of displaying prices for like products so that they can be compared by the buyer. The theory goes that if you want to sell more of a product you have to give the buyer something to compare it to. Decoy pricing is used to direct a customer to a purchase decision that may not be exactly what they want, but turns out to be a no-brainer for them in the end. For example, he describes an advertisement that he viewed online for a subscription to The Economist. In the ad, the reader was presented with 3 choices; 1 – Internet Only $59, 2 – Print only $125, and 3 – Print and Internet $125. Clearly only an idiot would choose #2. It is the decoy. It tells the buyer that print is worth $125. But out of the goodness of their hearts, the marketers at The Economist are happy to give a free Internet subscription with the purchase of the Print. This decoy price drives purchasers away from the Internet Only and to the more expensive product by a margin of 4 to 1.

Another, interesting topic, relevant to decoy pricing and again, valuable from a marketing perspective, is the chapter on relativity. Relativity is important because it is a critical tool in how we make decisions. In the book, Dr. Ariely tells the story of the first bread makers. When bread makers were first introduced they didn’t sell very well. It wasn’t until after the company introduced a second, more expensive line of bread makers, did sales take off. Of course, the sales did not occur in the more expensive bread maker, but in the more reasonably priced version. Dr. Ariely explains that as human beings, we need to make decisions in relative terms. It is difficult for humans to comprehend things in absolute terms. We need to compare like things.

Decoy pricing and relative pricing were clearly my favorite parts of the book. Unfortunately, they were in the beginning. The book tended to be less interesting to me after that, but still a worthwhile read. I recommend this book for those interested in economics, marketing, or human behavior. If you enjoyed Freakonomics, you will enjoy this as well.

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