2017-09 Book Club Transcript

Hello and welcome to the September edition of my bookclub. This month we did Dan Ariely’s Predictably Irrational. At first glance, you may be wondering, do we really need a book to tell us how irrational we are? But all it takes is a glance outside to see that people are making mistakes and not acting logically all the time. So, what does having a book like this tell you about it?

I think it’s not the second word, “Irrational”, that’s important here but the first word, “Predictably” because we’re not just making mistakes at random. It’s not because we’re not smart enough. It’s because the way our brain is designed leads to systematic errors. Meaning, we make the same kinds of mistakes over and over and over again, even when that’s not in our best interest.

This is a very interesting topic. It’s been something I’ve been interested in for a very long time. It goes by the names of biases and heuristics when we’re talking about psychology and it’s been applied to a sub-field of economics called behavioral economics.

This is a field established by Daniel Kahneman and Amos Tverky, two psychologists that found that contrary to classical assumptions of economics — that human beings are rational, that they are trying to maximize their utility, make correct decisions, that even if they make mistakes it averages out. So if you have 100 people with 20 who over-spend and 20 who under-spend, well it all averages out — well in this case, it’s not like that because what we’ve found is that maybe 60-80 of those people over-spend or they under-spend.

So when we look at behavior as a whole we find that there’s certain situations where most of the time we make the wrong choice or we behave in ways that don’t really make sense. There’s two real reasons to read a book like this.

The first is that if we’re making systematic mistakes then the author suggests that we might be able to counteract them. If we know that we’re going to make a certain kind of mistake we could either try to limit its influence in our life or maybe we could control our environment if deliberately restricting ourselves is impossible.

The second reason to read this book is our brain makes a systematic error that suggests also how the brain is working so seeing these bugs in the software, sort to speak, is a way of understanding how the software is written, how it works. So it’s not a quirk or defect from perfect rationality but this is maybe a deeper picture into how our mind actually works.

I want to go over the main biases, some of the main deviations from rationality that were talked about in the book. After, I’m going to have an extended discussion with Vat Jaiswal and we’re going to talk about some of the practical applications for this book.

One of the first things to discuss is the idea of relativity. We don’t make decisions absolutely but relative to something. This is something you probably have experience with. Let’s say you were going to buy a car and someone says, you can get leather interiors for another $3,000. Well, if you’re spending $30,000-$35,000 on a car, maybe that doesn’t seem like that much.

Maybe that same person, however, if they were considering a $3,000 leather couch in their apartment, would think “oh that’s too expensive, I can’t spend that much money on a couch.”

Yet, it’s the same amount of money and maybe for all practical purposes, sitting on the couch and the comfort and quality of the couch matters more than having leather interiors [in your car].

So this is an example of the relative effects that cause us to minimize that $3,000. But really, to our bank account, $3,000 tacked on to a bigger purchase or $3,000 purchased separately, are the same thing. This suggests that we will often make these decisions on a relative assessment rather than “how much is this worth to us?”

This is important because you can often think of people who are clipping coupons or trying to save money in another way. So they might rush to the other end of town trying to save $10 because they have a coupon. But maybe they’re losing thousands of dollars on the big purchases. So this is one type of irrationality.

Another type that’s related to this is that of anchor effects. Think of a situation where you don’t have a good idea what the correct number should be. I remember one study [in the book] where they had people guessing how many countries were in some African league of nations, and they had people go to a spinner and it would be pick a low number like 12 or a high number like 60. Next, they asked them how many countries were in this African union.

What happened was that this random number, which the person knew had nothing to do with the number of countries in the union, influenced their subsequent judgement. If they got a 60, they were primed with 60, so they were more likely to suggest a high number than if they got a low number on the spinner.

What’s interesting about this is the person knew there’s no relationship [between the spinner and the number of countries in the African union] but yet, they couldn’t help but let it influence their thoughts.

We’re constantly searching for cues from the environment of what something should be. This allows marketers and other people to perhaps manipulate our sense of what is an appropriate number or an appropriate cost of things.

Another bias discussed in the book is the “cost of free”. So classical economic models will say that, well, we should respond equally to an equal change of price. So if we lower something from 10 cents to 5 cents or from 5 cents to zero cents, that should have a similar impact on our propensity to consume it. And what they found is that, that’s actually not the case.

When you go from a low cost, to free, all of a sudden, you want much more of the thing. This has led to some interesting situations where people will consume something far more than they would otherwise, even more than they actually desire, because it is free.

This has some negative implications because, very often, something that is free isn’t actually costless. There’s opportunity costs, meaning that if we get the free sandwich we don’t actually get the one we really wanted. It could be that there’s hidden costs like standing in line for a while to get something that’s free or sending in a mail-in letter. So very often free isn’t truly free even though we respond to it as such.

Another bias in the book is that we have seemingly two separately existing domains of moral norms and behavior. One of those are social norms that deal with our personal relationships where usually money isn’t involved. And the other one is economic relationships where we deal with strangers and people that we don’t have relationships with.

What’s interesting is that these relationships often conflict and can lead to what classical economists often puzzle at. An example might be that your mother-in-law might be happy to make you a Thanksgiving dinner but if you were to offer her $200 for it, she would be outraged.

This is because by offering to pay her, even though you weren’t paying her before, it’s changing the domain of the interaction from the social domain to the economic domain where different rules apply. What’s interesting here is that because these domains are separate and have their own existing set of logic the transition zone between them can have some irrational effects.

One of my favorite studies on this has to do with a daycare centre. The daycare center found that parents were picking up their kids really late so they decided to institute a fine. The parents had to pay $5 if they were late to pick up their kids. The idea being, well, before it was free, now it costs you money and that should effect your behavior.

What happened instead was that more people started picking up their kid late. Why is that? Before it was in the social domain where it was rude to pick up your kids late and you shouldn’t do that other people. But as soon as you attach a price to it, now it’s in a market domain and well you’re happy to pick up your kids late because you can pay $5 to not feel guilty about it.

What’s interesting about this is that when they tried to switch it back — they got rid of the market domain — the previous economic behavior stuck. This shows that once we switch to an economic domain we’re reluctant to switch it back to a social domain. This has a lot of implications for things like our behavior with our friends and family, and much, much more.

Another idea is that we operate better with constraints that, strictly speaking, should make us worse off. One of the examples has to do with exams. Dan Ariely had three classes; one of them he gave a writing assignment to that had fixed deadlines, one of them he let the students choose when the deadline would be and if they were late they’d have a penalty, and the other one, there’s no penalty. Students could return the papers on the final day, and they’d be fine.

What’s interesting is again, from a classical economic perspective, more constraints should make you worse off because there’s always a chance you’ll return it [the paper] late and you’ll be punished. But interestingly enough the ones with the more rigorous constraints were also more likely to get good marks.

So it seems that constraining our behavior in advance can somehow lead to beneficial outcomes because we’re more likely to follow things in the right way. This shouldn’t be too surprising. I’ve talked about this a lot with productivity and it’s nice to see science back this up.

Another idea is the endowment effect: we value things more that we own more than what we don’t own even if [coming to] own it was somewhat random. An example from the book is that there was a bunch of people trying to attend a sports game and they were all lining up and those who lined up were given the tickets by lottery. Some people got it randomly and some didn’t.

What’s interesting is that the people who didn’t get it were willing to pay a much smaller amount to obtain the ticket than those who had a acquired it were willing to sell it for. Those who had acquired it were willing to sell it for thousands of dollars while those who hadn’t acquired the ticket [by lottery] were only willing to pay hundreds for it despite the fact that who ended up in which group was completely random. So the mere fact of ending with the ticket randomly made people value it more.

This is interesting because very often we get into situations where we become attached to the things we have or the situations we are in, in irrational ways. So we’re more likely to defend it and more likely to hang on to it.

People can exploit this. Often what they’ll do is give you something so that you can have it and then once you have it, you’re reluctant to give it back. Another irrationality that’s discussed in the book is that we try to keep our options open too much.

Very often we’re afraid of letting an option close even though we’re wasting time trying to pursue that path. So you can often think of this in terms of the person who has a triple major because they don’t want to shut doors. Or, they’re dating two people because they think, “if I break up with one of them, I might make the wrong choice.”

Interesting thing about this, it’s often counter-productive because what we need to do is invest in one option and by spreading ourselves over many options, so we’re actually ending up worse off.

Another idea that was discussed in the book was the placebo effect. Now we all know the placebo effect is something where you give people medication or you give people some kind of treatment that doesn’t actually work but they think it might work and they actually tend to get better. It impacts things like pain and it can be very powerful.

But what’s interesting about this is that the placebo effect is also sensitive to price. If you give someone a ten dollar pill they will believe that it works better than a 10 cent pill. This shows us that our ability to perceive how effective things are often based on price. So if something is really expensive we perceive it as being better.

Finally I want to discuss is that of expectations. When we are in a situations, our own expectations color our own experiences even when it doesn’t make sense. In the book they use the example of beer. There is a study where they gave a group of people two types of beer: one was normal beer and the other had some drops of vinegar in it.

If you didn’t tell people that they had the beer with the vinegar in, most people actually chose that beer. But if you told people first, they wouldn’t choose it and they disliked it and said it wasn’t very good.

It shows that knowing that you think there’s a thing that will taste bad actually makes it tastes bad. This shows that so many of the things we consume from fancy products to fine dining to consumer goods is influenced by our perception prior to the fact of, is this going to be good or not.

So this is a lot to digest. I think the best idea is to read the book, you’d get a lot more detail but really I think the big, broad picture is to open your mind to the idea that you’re making mistakes and maybe you’re behaving irrationally in a systematic way.

I’d like to transition to a conversation I had with Vat Jaiswal about some of the ideas in this book and in particular how can you exploit the idea that you’re irrational and how can you make mistakes perhaps a little bit less.

Bookclub Discussion:

Scott: So today we’re discussing Vat Jaiswal. Vat, as some of you might remember, is the guy I did “The Year Without English With” so we were traveling for a year learning languages and I thought it would be interesting because he had also recently read this book so I wanted him to have this discussion with me about “Predictably Irrational”. So Vat, what did you think about the book?

Vat: I think the book is really interesting and I would encourage all the listeners to give a read because it talks about how we’re irrational and not just that but predictably irrational. We all have some biases towards doing something that, we’re thinking we’re doing one thing but we’re doing something else. I thought the book was really interesting just from that perspective.

Scott: Absolutely and I think there’s a feeling, like, it’s that obvious that we’re irrational? But I think that what Dan Ariely says which is so interesting to me is that this predictability of it, the fact that we are systematically making incorrect choices is more than just that we’re not very smart or that we can get tricked, but there are systematic ways that we make the same mistakes over and over again. Obviously if there are systematic ways that we make the same mistakes there are systematic ways that we can correct them.

Vat: That’s true but I also remember reading somewhere in the book that the author was saying that he also is led by his own biases. I don’t know if you know about these biases, if you can correct yourself. I think we’re all kind of stuck with somethings. But it’s good to sort of know, and then we might be able to mitigate some of that.

Scott: That’s actually a deep question. I know in another book on this topic Thinking Fast & Slow by Danial Kahneman is very interesting in that regard because it’s his opinion of it is that these biases are inescapable and that maybe if we really train ourselves we can overcome it in a narrow situation but then if you go to a different situation then you’re back to the same problem and bias.

So I think that that is a real interesting point. That perhaps these biases are not something that we can escape. And so, what do we do about that? Is there some way to mitigate it by changing the environment — because clearly saying okay I’m not going to be irrational — well that doesn’t work all the time.

Vat: I think there are certain things definitely that you can correct in your behavior to sort of mitigate these biases but I don’t think they will completely go away. The benefit for all the listeners reading the book would be becoming aware of how these biases come into play in our daily lives and the decisions that we make. So, I think that, knowing about it helps a little bit.

Scott: For sure. So let’s talk about just a couple of them. Because the book goes over a number of different biases and a number of different ways that we are predictably irrational. Let’s just talk about a couple of them.

The first one I want to talk about which I thought was very interesting because this is something that you have deliberately designed your environment to try to overcome is the one on self-control and procrastination. I know this is a topic that is interesting to people reading my blog because they want to more productive, they want to get more done, they want to accomplish their goals, and issues of self-control and discipline get in the way.

In this chapter he talked about one of the deviations from rationality is that if you give people more constraints, in particular you give them the ability to hinder their own progress, in they might actually do better.

The study in chapter seven in the book was about exams. I think the author took three different classes and he gave them different conditions for how they could be graded. One of them was normal they gave fixed deadlines for an exam. The other class had papers they had to write which they could assign their own deadlines so they could pick these deadlines in advance and if they were overdue they’d be penalized. The third class could hand in the paper whenever they wanted without penalty.

Interestingly, the students that had constraints (even self-imposed constraints) did better which flies in the face of rationality because you’d think that having no penalties would make you more proficient than having some penalties but that isn’t the case. I wanted to talk about this in the context of what you do, Vat.

You are somewhat interesting in our group of friends because you have a lot of self-imposed constraints that a lot of others would be like, why are you doing that!? But they are really effective so maybe you can talk about your own experience with that.

Vat: Just before I talk about my own experience, I remember, a book I was reading about psychology and they were saying that putting restrictions are self-imposed they are much more effective because you’re the one who set the limits, you feel more responsible and in control when you set your own restrictions as opposed to someone else telling you what to do. That can lead to a feeling of like someone is trying to get you to do something.

In my experience, when it comes to productivity, I use applications on my computer that block electricity.

It starts at 8:00am and it ends at 5:00pm and during that time all the social media sites and all the time wasting sites are all blocked. Now, this is a restriction I’ve set for myself. This occurred through observation; I was looking at how I was wasting time and how much more productive I am after not using those sites.

After implementing these restrictions on myself I find my productivity is much better and I’ve been doing it for years now.

We all know we shouldn’t be wasting time if we’re trying to study or work but we all do it. So, there are applications that can help you with that and I’ve been using that with a lot of success.

On Firefox, I use LeechBlock and it let’s you blacklist sites that you wouldn’t want to use at a certain time. It’s a good add on because it’s pretty flexible and it allows you to have it open so you can change it on the fly.

But I have it on the highest restriction setting so I’m unable to change it while I’m working. It’s a very strict way of doing things but I almost feel like if you’re not strict, then the whole thing fails.

I use a Mac so I’m using an application Mac App Blocker and basically that blocks the applications themselves so you can block your web browser after 11:00pm — I actually have it locked at 10:30pm and that helps me go to bed on time. So those are the two applications I recommend.

Scott: I remember earlier when you didn’t use these applications and you often said, “okay I’m wasting a lot of time right now, I’d like to be doing X or Y, but instead I’m filling my time with other things.”

And one of the things I thought was interesting, for those of you who are listening here, we were actually roommates four or five years ago. At that time you’d like to play video games on your Playstation, PS3 I think it was.

Then, we were traveling and you didn’t have a TV or game system and eventually after a little while you were thinking “maybe I should buy one” but you were worried because you remembered that you used to play video games a lot.

What I thought was really interesting was seeing you put together a solution for your television [back home] and basically you have a power bar that has a light timer and it only allows electricity through it for certain times a day.

You can plug it in so that — I think you said from 8:30pm – 10:30pm at night — there’s electricity to the television so you can use it but outside of those hours there’s no electricity so you can’t use the TV.

What’s more, you’ve locked this power bar within in a small box so that it’s difficult for you to change it if you decided you wanted to watch TV at a different time.

I thought this was really innovation because it shows that a lot of people think they could do it  but if you think about it there’s lots of ways you can burn your bridges, sort to speak, so you force yourself to stick to a particular schedule ahead of time so that it’s very inconvenient for you to do it differently later.

Vat: Absolutely so I’ve been using this TV system that I have sort of devised for about eight months now. It has been so amazing because also, like I said, it works together with the other systems that I have (blocking the applications on my computer at 10:30pm) my TV also shuts off at 10:30pm.

It’s difficult to get into it, but because I’m the one who initiated this restriction on myself I don’t have a problem with it because I have seen what happens if these restrictions are not there. I have also tried systems where it’s kind of loose; so the restriction is there but you can unlock it so you’re able to watch TV if you really wanted to. And that system does not work.

You have to be absolutely 100% secure in the system you’re coming up with. So the TV thing here, it’s nearly impossible for me to change it. But what’s funny is that I’ve used it for a number of months now and I used to think “I should remove this, this is stupid,” in the beginning, but now, I never question it.

I feel as though someone could remove the lock and I wouldn’t even notice for months. It’s a habitual thing for me and it’s only in the evening (when I’m watching TV) and I’m doing other things in the day time.

When I do watch TV or play video games I am really happy and never guilty. I am happy to have these self-imposed restrictions but it’s difficult to explain it to people, it has to come from within. You are the person who has to make the restrictions for yourself.

Scott: Absolutely. You know, I think this is also an example of how you have this bias but also maybe how you can overcome it or the irrationality by changing the environment. On that note I want to talk about some of the other biases that are talked about. It’s not just about procrastination. One of them is about the cost of “free”.

This is an interesting chapter that we were talking a bit about before we started the recording and so, when something is free, when it goes from one cent or one dollar to costing nothing, suddenly our brains stop working. We become irrational. We pursue it with vigor and we want more, more and more of it.

One of the reasons this is irrational is that we fail to include the other costs that are involved. We are more likely to pursue something when it’s free but we don’t consider opportunity costs.  I want to give an example: my fiancée was walking by McDonald’s and there was a huge line up stretching outside. She wondered what was going on and why people were lining up around the block. It turns out it was “Free Ice Cream Day.” and they were given away this ice cream.

Now, I’m pretty confident that the ice cream at McDonald’s maybe costs a dollar. It’s not very expensive! And yet, people were lining up for ten maybe fifteen minutes. In what world is your time worth so little that it’s worth standing in line at McDonald’s for up to twenty minutes for ice cream that probably doesn’t even taste that good.

If someone were to say, hey, this ice cream is now 30 cents, you’d say, “that’s crazy, I don’t want that!” I’d rather have a nicer ice cream or maybe I don’t even feel like eating ice cream right now.

Vat: But as soon as its free you’ll want to get it. It was a very interesting chapter; this is a bias that we all fall for. I fall for free shipping all the time! What are some free biases that you fall for, Scott?

Scott: Oh jeez! I think you’re absolutely right often when something is costs a little bit, you’re suddenly more ooh maybe I shouldn’t pay for that. And you’re like, mmm I don’t know but if its free than why not?

I think that sometimes this also comes into play when you are looking at a bigger package. So it’s not often just that something is strictly free like an ice cream or [in the book] they do this study where it’s with Hershey’s Kisses. But it’s often the case where you can look at something that does have a cost but there’s something free attached to it and that triggers the same irrationality that has us failing to see the larger picture.

One example of that would be paying for things that save you time or effort. I’m trying to remember exactly what the situation was but, there was a situation where I was using this free solution that was much more inconvenient than just paying a bit of money to solve the problem.

It was free but it was wasting my time. It doesn’t make sense and so I think that the irrationality here is our failure to consider broader context and that’s not only the associated costs so if you get a ‘free bonus’ with a paid product that you don’t want then there’s an associated cost.

Sometimes it’s the opportunity cost. Rather than getting that free McDonald’s ice cream you could spend that time doing something else.

When I was early on as an entrepreneur, people said you have to start pricing your time. And there can be drawbacks if you say “every hour of my time is worth $50” for example.

They amount of value you get for time is lumpy. You can do one change in ten seconds that makes you a couple hundred dollars or you could spend hours and hours and there are no real obvious returns at the time. So it’s hard and I understand that.

But, at the time same, pricing your time is important because it automatically makes you consider the costs of these things. So, running around town to save $5 or cutting all these coupons to save one dollar, is not valuable in the long run because you’re not actually saving that much money and the time that you’re wasting is perhaps valuable time that is being stolen from you and if you compensated yourself properly, you’d see that you’re actually losing money.

Vat: Yes, I have an idea on this where this idea of opportunity cost — you should always been optimizing and saving the most amount of time and using your money efficiently — but this is a purely logical way of thinking and we are emotional creatures.

I will give you an example of something that happened to me recently. Now, I park my car on the street and someone stole the logo off my car. So I could just buy a new logo and put it on but I like to do creative things if I can so I see an opportunity here “oh maybe I could design a logo myself” so I did a laser cutting logo and then I’m going to put it on there.

I’m telling this story because where, I might have rationalized it in my mind saying that the reason I’m doing it is because it’s cheaper or I want to do it, but the reason is that I wanted to do the logo design process. I am emotionally biased to do that.

When see people “couponning” or driving far out of their way for a coupon, from one perspective it’s irrational because you could have save time and ordered it online but looking at it from the emotional perspective, maybe they wanted to go shopping.

Scott: I completely agree. I think that this is related to another issue but I think it’s important in this context (we’re talking about coupon cutting) and one of the real lessons from this is that if you want to be saving money, like what you care about is that your bank account balance is moving in the direction you want it to be moving in, then this research suggests that what you should be really looking out for are the big ticket items.

So if it’s a car, a house, renting an apartment or even purchasing a new couch — so something that’s bigger then what you’d normally purchase — that’s what you have to look out for.

If someone says “this is a five thousand dollar add-on”, well, normally if you were spending that, it’d be a huge purchase but let’s say you’re buying a thirty thousand dollar car so maybe you think a five thousand dollar add-on isn’t a big deal.

So you make that decision compared to something that you would independently purchase for five thousand dollars.

At the same time, if you’re buying groceries and it costs five dollars at one place and ten dollars another, you’d always buy the groceries at the five dollar place. Well, you’d have to buy a lot of five dollar groceries to make up that five thousand dollars that you’ve just spent on that add-on on your new car.

So this similar situation is coming up where if you are trying to actually worry about the money, if that’s what matters to you, than being selectively frugal is what matters. Not so much the coupon cutting. However, and Vat you bring this up and talk about the emotions associated with it, but maybe what we’re doing is not actually trying to maximize our bank account. Maybe what we’re trying to do is create a feeling of frugality. This feeling that I’m being this “smart consumer” and so cutting coupons (even though it doesn’t have that much of an impact) is creating this feeling that “I’m thrifty and I’m smart with my money,” etc.

Vat: Being frugal feels good. Every time I am able to save money I feel like, wow that was smart of me. It’s an emotional thing and I think that’s what we’re chasing.

Scott: I think that’s an important thing to consider. I think you have to look at your motivations. Are they to get this result, like, you know, you’re really in debt and if you don’t save money you’re going to be in a crisis or are you trying to feel a particular type of lifestyle?

This happens with health products. Some aren’t actually that healthy for you meaning that they have extra calories and they also taste bad, so I can think of some things, well, no offense to anyone who likes kale but I’ve seen some kale salads and you know, kale tastes worse than lettuce. I’m sorry, it just does!

It’s a more plastic-y version of lettuce and I saw a kale salad that was covered in some kind of dressing so the calories weren’t actually that great. I remember I saw it in some health food environment and I can imagine people buying it and maybe it’s not that healthy but it gives you this feeling of aestheticism. This feeling that, “oh I’m saving myself with this healthy item!”

I think we need to weigh that into our calculation. Why am I trying to lose weight? Am I trying to be healthy? Think about do you actually get some kind of pleasurable feeling from eating that kale salad because you’re doing something that’s quote, unquote, good for you?

As you said, emotional calculus is important.

Vat: One last example before we move on to the next section, studying. I’ve wasted a lot of time as a student sitting in the library but not actually studying. It gives you the feeling that you’re studying even if you’re not.

That’s another one of those things that gives you the feeling of studying but really, if you actually wanted to study, you can study anywhere, you don’t need to go to the library. Again, emotions come into play when we’re looking at these biases.

Scott: Absolutely. On the last bias or irrationality that I wanted to discuss, was, well it’s actually over two chapters, one was on expectation and one on placebo. So our expectations of an event strongly color how we later experience it. The study the author referenced was that they gave some free beer and in one of them was a regular beer, something like Budweiser or Sam Adams, and with the other beer, they added balsamic vinegar to it.

Interestingly enough, people often, when they didn’t know it had vinegar in it, they would pick the beer with vinegar. But if they told them it had vinegar before they got the beer, very often they would scrunch their nose and say “ew this is gross” even before they tried it.

But what I thought was interesting was that if they were told after the fact (after they had tried the vinegar beer) they were much more willing to say, I actually liked that.

It shows that people did like the vinegar beer but they were much more skeptical of it and it influenced their perceptions of it.

The other chapter, about the placebo effect, basically says if you give people “more expensive” treatment, even if it’s not effective, they’ll believe it’s more effective. This goes with this whole idea of our expectations influencing our perceptions of reality.

If we get a more expensive “pain medication” when it’s just an inert pill, we believe that it was made better and we don’t feel as much pain later. So this is a really interesting question I think in terms of “how do you implement this?”

The other two ideas that we talked about have some kind of obvious, well this is how you can implement this in your real life, but the expectations is almost counter-intuitive because if we are irrational with respect that we have erroneous expectations and that actually can have positive effects later, what do you with that?

How do you deceive yourself? Should you deceive other people? What do you think about this?

Vat: I think we can use the placebo effect to our advantage. One example I can give — another one of my self-imposed restriction experiments — about two years ago and for about eight months I decided I have to go to the gym every single day. It’s non-negotiable. But actually the restriction wasn’t that I have to go to the gym and workout it was that I had to go to the gym and even just touch the front door.

I’ve read another book which is talking about the placebo effect and what it enables you to do is when you just touch the door and come back, what you’re doing is starting to think in your own mind “I’m the type of person who goes to the gym everyday”

That’s really important, because over time, it helps you to actually become the type of person who goes to the gym every day. So, the placebo effect is very strong.

What’s one of the placebo effects — i know you’ve done a lot of productivity experiments — Scott can you list something from your own life?

Scott: So I think this is really interesting this topic because on the one hand, I’m a sort of pro-rationality person. I don’t like superstitions, I like to know the truth about things, I’m very reluctant to believe things that don’t have evidence but at the same time I believe I am receptive to the placebo effect.

One example is “back in the day” I had taken a course in speed reading, and I was convinced that this worked and I used it and I was reading a lot more books, I was reading them fasters, blah blah blah and I was so impressed with it that I wrote an article about it.

Fast forward a few years later, I had kind of stopped using some of the techniques I had learned previously and I was starting to get these hints that you know, maybe speed reading doesn’t work.

So I would read on a site somewhere that it doesn’t work and I decided to do the research and I find out, guess what, it doesn’t work! Well, to be clear, it doesn’t work as well as advertised. It’s basically just a type of skimming. You can read a lot faster, yes, but you’ll also comprehend a lot less. The whole premise of speed reading was that you could read a lot faster without losing comprehension and that just doesn’t seem to be the case.

Now I don’t recommend speed reading as a tactic for that reading. But I think about when I started speed reading some kind of placebo effect? Now maybe I wasn’t actually reading faster in the sense that it wasn’t a placebo effect in the sense that yes, but it did encourage me to read a lot more. So I think that with a lot of the productivity techniques that I use, how much of those are influenced by my own expectations of them working?

I advertise things like fixed schedule productivity and weekly / daily goals and the “pomodoro” technique and sometimes I wonder how much are those influenced by my own belief that they work?

If I tell someone, use this technique and they think, well Scott’s a productive guy so maybe it will work for me too. They convince themselves that it works. Whereas I could have suggested anything and it would have worked.

Well this is interesting for two reasons. One is that it really undermines your belief about things. If you think this placebo effect is real and pervasive, well, how many things are you doing that you believe work but they don’t actually work?

But the other side is, does it really matter? If you’re using things that don’t work in the double blind medical evidence based method sense, but they do have an effect because of your expectations, shouldn’t we be exploiting that?

If we restrict ourselves to the things that work on high evidentiary grounds are we not robbing ourselves of the benefit of the placebo effect?

Vat: I think we can all exploit the placebo effect. We should maybe focus less on the fact that is some kind of irrationality and more on helping to bring real change in our lives. I know there are listeners here who would like to make personal changes in their own lives. Maybe it’s getting in better shape or saving more money.

We can exploit these placebo effects and you can devise your own experiments to help you get there. So if you think you’re not the type of person who can save money, basically, the author says that your experience is shaped by what you think. So if you can get to a point where you think “I’m really good at saving money” you might actually become really good at saving money.

Scott: We’ve talked about benefiting from the placebo effect on ourselves. As I’ve said, I feel like as a rational person, this shouldn’t work. Right? If you’ know you’re deceiving yourself, doesn’t that undermine it? Yet, it seems to work almost all the time.

We seem to have this duality where we know something isn’t fully effective but we convince ourselves it works and are able to play into this irrationality. But another part, and I think this is the more interesting question, is should we be using the placebo effect on others.

Let’s say we have some medical issue, some disease that isn’t treatable, should doctors be prescribing people with placebos? If the idea that the placebo for whatever effect it is, might work. Let’s say it’s chronic pain where there’s no known cure, should we be offering placebos?

I want to extend that because maybe you have an answer to that in one way or another because we think about doctors as being upstanding people. Should marketers sell sham products — let’s say there’s some non-medical reason you’d want to have a product that there’s no known way to fix that problem — should marketers sell products that don’t actually work and hype them up even if it’s just a placebo effect?

Should the person who sold me the speed reading course, given the fact that later research shows that speed reading doesn’t work. I don’t have an answer, really. My inclination is the lean against it. I think you’d shouldn’t do that because I worry about the long term effects of eroding trust.

One of the chapters of this book is about how sham marketers have eroded our trust and that have negative effects so while the placebo effect has a net positive effect, if you’re dishonest you might have a negative effect so we’re less likely to trust even true statements.

So, I think that there’s considerable danger in doctors prescribing medications that don’t work because it will erode the trust that doctors give us medicine that works.

At the same time you can’t help but wonder is there an appropriate level of helpful lying to the benefit of the patient?

Vat: It is a kind of sticky topic because it depends on what we’re trying to achieve. But I am wondering about the speed reading that you mentioned. Let’s say the author of the course had told you it only works through placebo effect, would it have still had the same effect on you?

Scott: I don’t know. I think again, this is important for me to mention. I don’t believe that when you take a speed reading course that you will read faster through the placebo effect. When they’ve done studies on this, it’s not the same as the medicine experiment where people do report feeling less pain with a sham medical pill. It’s not the case where speed readers using an ineffective technique actually read faster because then speed reading would work.

The thing is that they believe you can read faster with no comprehension loss but that’s not the case. There is considerable comprehension loss.

What I am talking about with the placebo effect is that the speed reading caused me to read more and I became convinced that this was working so I read more books, I became excited about reading and I think it was helping my identity in a way.

That’s a really hard question, I don’t know if I had gone back and, if you’d have told me, “well, speed reading actually doesn’t work but I you believe in it you might get excited and read more, I don’t know if I would have believed you.

Vat: Maybe speed reading isn’t the best example. Let’s just say if I told you some trick for going to the gym and you know it only works because it’s placebo effect but let’s say a year from now, it will help you establish some kind of good habit. Would you still use it knowing that it is just a placebo? Someone who’s a really rational person might reject it based on this really irrational behavior.

Scott: So I would absolutely use the placebo effect in this if you know as I said, my worry is it undermined by your own belief in the placebo effect, I’m not sure that it is. The more interesting question for me is that it’s fine, it’s one thing to use the placebo effect on ourselves but when we start using it on other people that starts making it more worrisome for me.

I want to rap up by asking Vat, what are your concluding thoughts on this book? What is the implications for the book? Should other people read it? Can we control the fact that we are predictably irrational?

Vat: I would say that knowing the biases and knowing how we’re irrational it’s already a win so anybody who’s trying to make a personal change in their life should give this book a read. I would absolutely recommend it. And then every person’s situation is different so they’ll feel differently about the book but there’s no doubt that Dan Ariely is a great writer and he’s conducted amazing experiments and it’s written in a humorous way.

Everybody would find something interesting in there. In a way, this book doesn’t give you solutions. But then that’s up to you. You can come up with creative solutions to make personal changes in your own life.

Scott: I want to thank Vat for joining me and discussing this book. It was certainly a lively discussion. There’s a lot to think about. I hope you as the reader and listener, thought that the conversation was interesting. As always, if you want to join our Facebook Group you can do so for free and you can discuss the book while we’re reading it.

We will be doing a new book each month, covering the topic, and discussing how that book can effect your life.

Vat: Thanks for having me, Scott.