Dan Ariely on Humman Irrationality [Updated]

Dan Ariely is an expert on behavioral finance. His recent book which is out in two weeks.

Self control is an issue that is important when it comes to investing.

Most people would rather have half a box of chocolate right now than wait a week for a full box of chocolate. If the chocolate was right in front of people very few would refuse.

However if asked would you rather have  half a box of chocolate in a year or have a full box in a year and a week, everyone would pick the later, even though the two situations are almost exactly the same.

When people have strokes a great medication is currently available for people who have strokes. But many do not take it, even though it could prevent another stroke.

One method tried on patients is to reward or punish based on whether they take the medicine or not. The first experiment involved giving people $3 if they took the medicine, that did not work well. Then, they would get patients to pay upfront and loss $3 a day if they didn’t take their medicine, this was more effective.

Lotteries were also tried since people love to gamble. Patients were awarded a 10% chance to win $30 if they took their medicine.

The most effective method was found to be the following; all patients would be entered in a lottery, if they won they got to keep the money as long as they took their medicine.

Ariely also discussed regret:  If someone misses their flight by two minutes or two hours it makes no practical difference. However people are more upset when missing the flight by two minutes, because they imagine themselves able to have caught the flight.

Ariely mentioned that people need to develop ways to overcome their temptation when they are put in the situation.