The rational choice theory in economics assumes that consumers are rational. However, as in most cases of social science, such assumption is quite limited, thereby leading to plenty of economists’ questioning it and measuring its plausibility. Such economists are also referred to as behavioral economist. Dan Ariely, the author of the book Predictably Irrational, has dedicated his research to people’s behaviors in regards to situations involving money and social values namely by questioning that rational choice theory’s assumption.
Our urges, value systems, cultures and other social features that describe our behaviors appear to limit us in making rational decisions. Have you ever asked yourself why you should buy a $50 bottle of wine for a friend’s birthday, that will most likely not be enjoyed by that friend as much as giving them $50 to buy whatever they want, but giving them $50 would on the other hand make them feel uneasy?!
And how about those free pens at a conference which a lot of people are so interested in? Or anything free versus if it costs a penny, a nickel or a dime, that is, almost free? Based on the rational choice theory these symbolic prices should not make a huge difference, if any, in regards to the collection of these items, yet it appears to dramatically diminish the demand for them.
Emotion makes us loose our reason too, which is another limitation in the rational choice theory, among many others explained in his book.
If you want more information about these situations, then this book is for you. Written in a simple, yet still academic enough language, Predictably Irrational is a must-read not just for every economist, but also for every social scientist.