Dan Ariely and rational versus irrational decision-making

Yesterday Dan Ariely came to Davidson to give a few lectures and meet with faculty in the Economics, Philosophy, and Psychology departments. Greta attended two of the lectures and had dinner with him (along with the rest of the Davidson Psychology faculty). I went to his public lecture last night.

If you're not familiar with Ariely's work, you should consider reading his book Predictably Irrational, or at the minimum check out his blog, which is full of fascinating research and anecdotes about how we make (un)informed decisions.

At his talk last night, Ariely offered a several fascinating examples of the way everyday decisions can be affected by seemingly unrelated phenomena. To start off, he showed a graph of the organ donation rates in several European countries. I didn't have a notepad to take down the actual data, but it broke down something like this:


Arguably these are quite similar countries, so why was the donation rate so high in some countries and so low in others? All the countries allowed potential organ donors to easily sign up as a part of drivers' license renewal.

The reason, Ariely said, was that some of the countries had an opt-in system, like this:

Please check this box if you would like to participate in the organ donation program

This resulted in very low rates, as in England, Netherlands, and Austria. The other countries had an opt-out system, like this:

Please check this box if you would not like to participate in the organ donation program

That, and that alone appears to account for the difference. For a decision such as this, the way the question is phrased has an enormous impact on the outcome, even though countries like Germany and Austria, and Netherlands and Belgium, are clearly quite similar.

There's another way "irrationality" can be demonstrated, and we may be able to duplicate some of Ariely's results right here. Try answering this simple poll:

Make sure you answer the poll before reading on. I'll add some extra space so you aren't tempted.

Did you answer yet?

This is actually the second poll I posted. In the first poll, users were given three choices: Bermuda with no scuba lessons, Bermuda with scuba lessons, and Hawaii with scuba lessons.

If we had successfully replicated Ariely's work, then more people should have chosen the trip to Bermuda with scuba lessons. Why? Because we don't really have enough information to decide which trip is better. Bermuda and Hawaii are both appealing places to visit. By offering the no-scuba-lesson option for Bermuda and not for Hawaii, respondents now have an easy comparison to make. Clearly Bermuda with scuba lessons is better than Bermuda without, so that option is picked more often. I'll offer a more detailed analysis of our results at the end of this post.

This same effect can be manipulated by pollsters and marketers to get people to do things they wouldn't otherwise attempt. Ariely says the home-mortgage crisis as a case in point. He says he's asked dozens of economists what portion of a person's income should be devoted to a home mortgage. No one can come up with a logical way to determine the answer. Yet since government regulations typically say that no more than something like 38 percent should be devoted to a home mortgage, nearly everyone buys the biggest house the regulations allow them to buy. They don't have enough information to make the decision, so they take the "best" answer among the options provided.

During the mortgage bubble, some banks started approving loans that would meet this 38 percent target for the first two years, then for the remaining term of the loan, rose much higher. Many people still maxed out the loans they took out, despite having no evidence their income would rise to cover the expected higher payments in two years.

Other banks started offering interest-only loans, which traditional economists would say are better than equivalent loans that require borrowers to pay off some of the principal each month. Arguably this is true -- if you buy a $400K home with payments of, say $3000 a month, with an interest-only loan you could save $500 per month. You could use this money to pay back the principal if you wanted, or you could use it for other expenses, as you see fit -- it's more flexible, so it's better, right?

In fact nearly everyone who gets an interest-only loan simply uses the money to buy a bigger house and does not pay down the principal. They're gaining no benefit from flexiblity, and at the end of the mortgage term, they still owe $400 thousand dollars.

As you might guess, Ariely has a distinct political philosophy based on his research. I'll leave it to you to discuss whether that's a reasonable conclusion in the comments.

UPDATE: Our first poll didn't quite replicate Ariely's results. Fifteen percent of respondents chose Bermuda without scuba lessons, 20 percent chose Bermuda with scuba lessons, and 65 percent chose Hawaii with scuba lessons. This could be because people prefer Hawaii over Bermuda, or because scuba lessons aren't seen as a positive thing. In the new poll, you only got two choices -- Hawaii with scuba or Bermuda with scuba. If Ariely's result holds, then we should have even more than 65 percent of respondents opt for Hawaii.


More like this

Does the organ donation example show irrationality, or does it simply show laziness and apathy with regard to reading and writing government forms?

I think your poll is failing because more people would simply rather go to Hawaii than Bermuda, scuba lessons or no. I know thats why I picked Hawaii. Maybe change the destination to be a bit more equal.


Actually what I'm going to do after we've gotten some more responses is eliminate the Bermuda no-scuba option. If people prefer Hawaii overall we should see a larger majority going for Hawaii in that scenario.

I was actually expecting the results that came out: more people choose Hawaii. I think it has half to do with the fact that Hawaii is a safer, more familiar destination for most of the readers, being part of the US and all, but more importantly, it is probably partly because that destination does not have a choice. You don't have to regret taking or not taking scuba diving lessons when you get there.

My emotional response to the poll was that Hawaii was more special, and therefore valuable, because it was only listed once. Bahamas value became diluted by its repetition. However the point stands that I was emotionally attracted to the option I felt was more valuable, rather than simply the location I most wanted to visit.

By Abby Normal (not verified) on 21 Oct 2008 #permalink

Don't like water so I opted for trip #1 in Bremuda because I've been to Hawaii before.

I picked Bermuda, no scuba diving because, if it's all expenses paid and I REALLY want to go scuba diving - it's an expense.

So really the question was: Hawaii or Bermuda?

A question about the organ donor chart:
Germany has a system where you explicitly have to fill out a "donor pass" drivers license renewal is unknown there - how is the chart explained?

By Juergen Hartl (not verified) on 21 Oct 2008 #permalink

The example taken from organ donation rates may have more to do with the notion of social acceptance, and not much to do with rationality. When individuals are asked whether or not they would like to opt-out, the implicit suggestion is made that organ donation is more socially acceptable (or, perhaps even considered somewhat obligatory) than the alternative, and this may have an arational (not irrational) affect on the individual's preferences.

The poll is not particularly interesting, since the only decision which is clearly "irrational" is the decision to go on an all-expense-paid trip to Bermuda without scuba diving lessons (I'm assuming one can choose not to attend the lessons if he/she ends up not wanting to go), since the same trip with scuba diving lessons seems unequivocally better. I would imagine almost no one would choose this option anyways, so I doubt this is an example of human irrationality.

I'm not actually a proponent of the idea that humans are rational, but I don't think these particular arguments are very compelling.

I keep missing the chance to meet him now that he has moved down here. I find it amazing that a guy who had such a terrible military training accident could still draw from his long, painful recovery to explore hypotheses about pain tolerance. Maclean's had a nice interview with him earlier this year.

Just a simply amazing mind - hope you enjoyed the lecture and that your lucky Prof Greta enjoyed the dinner.


It's possible that I mixed up Germany and Austria -- as I said, I didn't have a notebook at the talk. Or perhaps Germany has recently changed its policy and the data is based on a previous policy?

I think people are just over thinking trying to get the 'right' answer (or just messing with you) because you gave too much information before-hand. Why would anyone pick Bermuda without the scuba lessons?

I would like to see data from a country that asks the question in a way that requires a response (e.g. Would you like to donate your organs upon your death? Yes or No). In the examples above, the respective governments have determined the default answer, and you must check a box to change the default. What would happen if there were no default?

What if the difference between those countries relates to some campaign for organ doning, or maybe some news event that was related to organ donation and moved people into becoming organ doners?

While I think that Ariely might've found something, maybe there should be more countries for comparing.

Kieran Healy has a very interesting post about this here: http://www.kieranhealy.org/blog/archives/2008/04/09/psychology-vs-organ…

That chart above? That's the consent rate. The actual procured organ rates are much, much closer, and Kieran argues (uh, maybe elsewhere - Crooked Timber, perhaps) that part of the remaining difference is that the decision to move from assumed to informed consent is usually accompanied by organizational restructuring that helps the entire organ procurement system work better.

Doesn't diminish the effect of opt-in/out on our thought processes - but the overall picture is a bit more complex than what Ariely presents.

To join Juergen, I don't think France uses this kind of practice for now. Surely I am not absolutely reliable about this since I don't have my driving licence, but I am definitive saying that it can't be part of the renewal, since in France you don't have to renew your licence (yes you read well: EVER, except that it was about asking people to have a medical check-up from time to time after a certain age, but I am not even sure that this law had been voted or given up; but whatever since organs are potentially less interesting after a certain age). So if you want to testify that you want to give your organs, you have to tell your relatives and hope they will respect this choice; you also can ask for a donor card and even "witness cards" (cards that you give to some relatives whom names are on your own card so that your choice can be corroborated, I assume to convince a reluctant legal representant)but they are not official documents so that the final choice is up to your relatives. Are you sure that France was belong the named countries (or do you secretly want to visit it for holidays...)?

For your poll to work you need to make the two locations as similar as possible. Bermuda and Hawaii are too different I think.
Maybe use Bahamas and Bermuda or two places that your culture views as the same.

By Nigel Dobson-Keeffe (not verified) on 21 Oct 2008 #permalink

I think it needs to be recognized that people's preferences for organ donation being whimsical, and people being irrational are two completely different things. That is to say, I can still be completely rational even if I allow the wording of a question to affect my decision as to whether or not I'd like to donate my organs.

I would pick Bermuda without the scuba lessons, because I have never been there, whereas I have been to Hawaii several times--I live in California. Also, I have terrible asthma and artificial knees, so I don't really care to go scuba diving. I understand they serve British tea in Bermuda.

To reiteratue Juergen's point: Germany does not have that system. I got a new driver's license a few months ago and it doesn't have such a box, you have to get a donor's pass if you want to donate your organs.

The research is interesting from a decision making point of view. Obviously people don't care much, and thus don't bother choosing either way. From an organ-donation point of view, the story is more complex, partially also since the relatives are always asked (at least in the Netherlands and in Belgium, but I suspect elsewhere as well) before organs are extracted, even if the deceased has chosen (whether actively or passively) to allow his/her organs to be donated.

Unsurprisingly, the relatives _do_ care about the organs, especially so shortly after the death of their kin. In countries with an opt-in system, presumably they're more likely to give the organs up since they'd be following the deceased's wishes. On the other hand, in an opt-out system, the value of the agreement is much less since the donor probably didn't actively choose nor care, so those families can be expected to deny donation even if the deceased permitted it since they would not (reliably) be breaking with the wishes of the dead.

I'd like to mention 2 things...

1. As of now, more than 65% people have voted for Hawaii... (it was 66 when i finished polling :P)

2. I'd say that Hawaii is a lot more popular in general than bermuda. Just try googling both... Hawaii gives twice the number of hits!
The difference i'd like to say(my personal opinion...), comes possibly because of the way the two options are displayed, with the "WITH" being displayed more prominently in case of Hawaii. So added on to the fact that Hawaii is more popular, in case people were totally unaware of the differences or if they were neutral, they would choose Hawaii with a greater probability.

I am curious why you thought more might pick Hawaii. I thought they would pick Bermuda since it's first and people might think it's more expensive and thus they are getting something worth more.

Steph, on the pole I took there were only two selections. The first selection was Hawaii and the second selection was Bermuda, both WITH SCUBA diving lessons included. I chose Bermuda as I have already been to Hawaii SCUBA diving and would love to do the same in Bermuda.

I agree with Nigel Dobson-Keeffe "For your poll to work you need to make the two locations as similar as possible. Bermuda and Hawaii are too different, I think. Maybe use Bahamas and Bermuda or two places that your culture views as the same."

The situation in the Netherlands is a bit different than what you describe. Instead of a checkbox, there are four options on the registration form:

Option 1 Yes, I give permission
Option 2 No, I don't give permission
Option 3 My next of kin decide
Option 4 A specific person decides

The distribution in the register is rougly 57, 30, 11 and 2 per cent (so most people actually give permission).

The biggest problem is that most people never fill out a form (typical response to mailings is somewhere between 10 and 30 percent). One of the reasons for this low response is the wording of the different options. It was found that many people have trouble making a choice. A large group wants to say "yes, I give permission, BUT you can only have my organs if my relatives agree". It is expected that the response will be higher if this option is added.

By Marielle Winarto (not verified) on 22 Oct 2008 #permalink

I thought the trick was that Bermuda has the Bermuda Triangle, so it would be totes irrational to go scuba diving there! I picked it anyway though, because I am into that kind of thing.

I choose Hawaii but mainly because I've never been there before whereas I've been near Bermuda frequently. Scuba really wouldn't alter it either way.

I picked Bermuda because it is farther from where I live (west coast) than Hawaii, and an all-expense paid trip to Bermuda would therefore be more valuable (airfare-wise) than a trip to relatively closer Hawaii.

Hawaii is a significantly more expensive trip (for me, anyway) than Bermuda, which is actually about the same as a weekend in NYC. If someone else is going to pay for me to have a vacation, I'll take the more expensive one, unless it's someplace I don't want to go.

I chose Hawaii because I thought most people would choose Bermuda, so I went against the grain. But I live in Australia so really care which of them you send me to.

I took the test that only offered two choices - scuba lessons plus a trip to either Hawaii or Bermuda. I created my own method of making a choice (since going to Bermuda without scuba wasn't offered). I chose Bermuda because I've never been there and have been to Hawaii many times. I would hazard a guess that many people find similar ways out of a dilemma - they create a third choice or develop an additional dimension that allows them to get off a fence.

By Factoid Junkie (not verified) on 28 Oct 2008 #permalink

I choose Hawaii but mainly because I've never been there before whereas I've been near Bermuda frequently. Scuba really wouldn't alter it either way.