Meet the Author of Predictably Irrational. In this section, Dan will also describe a little bit about what a behavioral economist is and what they do.

“Behavioral economics perspective says people are mistaken. While behavioral economics is more morbid from the prospective of looking at human rationality, it’s also more hopeful, I think, in the sense that it tells you that you can build, actually, a better world.” - Dan Ariely

When MIT’s Dr. Dan Ariely wants answers, he goes about it differently than most of us would. He recently hooked up consumers to an MRI to scan their brain activity in a controlled Coke vs. Pepsi taste challenge. And one brand emerged as the clear winner! It turns out that the red Coke trademark and the Coke logo actually do make a difference that can be (and now has been) measured. Finally, science has weighed in on the long-running marketing battle. 

If you’re given a bottle of beer with two tablespoons of malt vinegar added to it, you are likely to think the beer has a nice “malty” taste—if you aren’t told what’s in it. If you were to taste the same beer knowing how it had been doctored, chances are you wouldn’t like it. Why? Because, as MIT behavioral economist Dan Ariely points out several times in his interview with rabble+rouser, expectations matter. 

Dan takes this to the extreme when he measures the placebo effect and finds that not only will a sugar pill relieve pain if you believe it is a new painkiller, but if you think it is an expensive new painkiller, it will relieve more pain than if you think it has a low price. Does this have implications for marketers? You bet.

If you took a standard microeconomics class, chances are you remember learning that consumers make rational economic decisions based on maximizing their total utility. In fact, they order their economic thinking into bundles of goods and services for which they are indifferent, and make purchase decisions along a well structured indifference curve.

If you took a behavioral economics class at MIT from Dan Ariely, however, you would find that people just aren’t as logical as economists like to give them credit for. In the real world, people go to Starbucks for the biscotti, the ambience, and the French presses, and are perfectly comfortable paying $4 for a latte when they used to pay $1 for a coffee at Dunkin’ Donuts. 

When The Economist mailed MIT behavioral economist, Dr. Dan Ariely, an offer to subscribe recently, they received a curious phone call in response—what were they thinking by offering two very different types of subscriptions at exactly the same price? When Dr Ariely’s call to the storied publication failed to produce an adequate explanation, Dr. Ariely did what he does best. He developed a controlled experiment to test the impacts of different pricing strategies on consumer behavior.

Hey, it’s not what you or I might do with our junk mail, but then we don’t teach at MIT either (at least I don’t).

If you ever have Dan Ariely over for dinner and instead of bringing a bottle of wine he hands you $50, don’t be surprised. He’s probably conducting more research into the differences between social and market norms. That’s because his research has shown that consumers view social relationships very differently than they do economic (or market-based) relationships.

And as the Alfred P. Sloan professor of behavioral economics at MIT’s Sloan School of Management , Dr. Dan Ariely argues that as marketers, we need to be careful that we do not cross the boundaries from one to the other.