Countless experiments conducted in Dan Ariely’s book, Predictably Irrational, (based largely on behavioral economics), proved that although people believe they are making rational decisions on a daily basis, they are actually frequently thinking and behaving irrationally.
Ariely discusses his theory about irrational human behavior: “Although a feeling of awe at the capability of humans is clearly justified, there is a large difference between a deep sense of admiration and the assumption that our reasoning abilities are perfect. In fact, this book is about human irrationality – about our distance from perfection.”
After thinking more about Ariely’s premise that humans think they are rational, when in fact, they are quite irrational; I decided to create my own experiment…
Last Thursday was a cloudy day, yet the sun did make an appearance in the afternoon. The weather forecast for the following day (Friday) suggested a high chance of showers and thunderstorms, periodically throughout the day. As I thought about the large chance of rain for the next day, I knew I would most likely have to bring an umbrella around with me. I then took note of something interesting about my umbrella collection.
My assortment of umbrellas was not an assortment at all. Rather, it was a collection of seven, small, black umbrellas that were of poor quality. Why did I have so many of the same poorly made, sure-to-break-soon, umbrellas? I realized that I bought these miniature umbrellas for around $7-$10 (typically over-priced) on the streets of Manhattan, whenever I was caught in a rain shower. Was it rational for me to keep on purchasing these pricy, little umbrellas from street vendors every time it rained? Why had I not learned my lesson and tried to change this irrational behavior? I soon began to suspect others, just like me, also behave quite irrationally on rainy days when they are in this same situation.
I wanted to test a theory, revolving around the purchasing of umbrellas on rainy days from street vendors, to further prove Dan Ariely’s claim that humans are quite irrational. Before I conducted my experiment, I hypothesized that people tend to not buy in advance things they know they will need in the future, even if these items are offered to them for a significantly cheaper price. More specifically, I was curious if people were willing to pay approximately $10 for an umbrella from a street vendor on a rainy day, and if so, were they also willing to buy the same umbrella, from the same street vendor, for a cheaper price of $5, if the day was a sunny and beautiful one?
Are people willing to outlay money in advance for an item they know they will need in the future (rational) or are they perfectly willing to wait to the last minute to buy the same item, when it costs more and it is more of an inconvenience (irrational)?
I surveyed and talked to 30 random people (13 males and 17 females) on the Upper East Side of Manhattan. The ages of these participants ranged from 17 to 60. I asked them a series of questions, in this particular order:
1.) Have you ever been in need of an umbrella when it is raining outside, but did not have one with you?
2.) Have you ever purchased an umbrella on the street from a street vendor (the street vendor price is approximately up to $10), because you were caught in a sudden downpour or rain shower without an umbrella, despite knowing you are probably paying more than a normal amount for that umbrella?
3.) Even if you haven’t bought an umbrella from a street vendor when it was raining outside for approximately $10, would you consider buying one if you were in that situation?
4.) If the same street vendor were selling the same umbrellas for a much lower price (approximately $5), on the street, on a perfectly sunny day, would you consider buying the umbrella?
5.) Do you agree it would be more rational to buy the less expensive umbrella on a sunny day in advance, rather than wait and buy the more expensive umbrella when it is already raining?
After looking at my data from the survey questions, I discovered:
- 100% of people said there had been times when they had been in need of an umbrella when it was raining outside, but did not have one with them
- 50% of people had purchased an umbrella for approximately $10, from a street vendor when it had been raining outside
- 77% of people said they would purchase am umbrella in the rain, overpriced, from a street vendor, even if they had not done so in the past
- 90% of people said they would not purchase an umbrella at half the price, from the same street vendor, if it were a sunny day
- 70% of people did agree that it would be more rational to buy the cheaper umbrella on the sunny day, rather than wait to buy the more expensive one on the rainy day
While speaking with participants, I received many interesting comments:
- One man, in the age range of 30-39, laughed after I asked him if he would consider buying an umbrella at half the price, on a sunny day, and replied, “I was actually with my friend on the street one day and saw an umbrella I liked. My friend turned to me and said ‘Nobody would actually buy an umbrella on a sunny day. Are you seriously going to buy this?’”
- When I asked another man, in the age range of 30-39, if he agreed it was more rational to buy the less expensive umbrella on a sunny day, rather than wait and buy the more expensive umbrella on a rainy day, he answered, “I would only agree it was more rational if it became acceptable for men to carry purses.”
- Another male, this time in the age range of 20-29, said that he also disagreed it was rational to buy the cheaper umbrella on a sunny day. His reasoning was: “When you get stuck in the rain because you forgot to bring that previously purchased ‘$5’ umbrella, you still have to buy one.”
All participants had, at some point, been stuck in the rain without an umbrella with them. Out of those surveyed, 50% had purchased an overpriced umbrella from a street vendor on a rainy day. Even if they had not done so before, 77% said they would buy an overpriced umbrella from a street vendor on a rainy day in the future. However, it is interesting to note that 90% of those surveyed (which is quite a high number) said they would not buy the same umbrella at half the price, from the same street vendor, if it were a sunny day. Is this a rational way of thinking? It turns out that 70% of people admitted that in theory, it would be more rational to buy the cheaper umbrella on the sunny day, yet 90% of people said they would not actually do this in practice. This experiment proved that although most people were aware of what the rational choice might be, they most likely would still act irrationally in this circumstance.