Local Optimization

Irrational thoughts and behavior have been on my mind lately. Why do so many people think and do what seem to me to be objectively absurd things? It seems that Dan Ariely has written this book about it: Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions.

I'm a slow reader, partly because as soon as I read something good I have an irresistable urge to start writing about it, so I haven't gotten too far into his book yet, but here's the first gem: Decisions are hard, and we like to simplify the process by comparing similar things. I like to think of it as local optimization in the search space. Suppose we want to buy a new something, say a bicycle. Imagine that we are having trouble deciding between a road bike and a nice mountain bike, each priced similarly. It could be a hard decision, since each has rather different advantages, each of which might appeal to us (the mountain bike can go anywhere, but the road bike is faster, lighter, and more efficient). Given a customer having trouble making a decision, a clever salesman can tilt the decision with a tactic called the decoy: Present the customer with a third, clearly inferior, option very similar to one of the first two - a much more expensive mountain bike, say, or a road bike with fewer gears. People tend to tilt in favor of the comparison that's easy to make.

We like to get a bargain, but detailed comparison are hard, so we make the choice between the two examples that are most easily compared - the closest together in our mental search space (my term, not Ariely's).

I recently bought a new air conditioning system for my home - a fairly significant expense for someone in my income bracket, and I notice that my choices fit his model very closely. Think about it in in your own decisions.