I attended a very interesting keynote address at Predictive Analytics World in San Francisco, February 2009, entitled The Unrealized Power of Data by Andreas Weigend, former Chief Scientist of Amazon.com. As noted in an earlier blog, Weigend's a big proponent of applying scientific principals to facilitate business learning. He's also keen on social or viral marketing, the end goal of which is to evolve CRM to CMR – customer managed relationships. When asked at the end of his talk to recommend a source for BI inspiration, Weigend didn't hesitate, touting Dan Ariely's best-selling book on behavioral economics: Predictably Irrational, The Hidden Forces That Shape Our Decisions. Weigend also enthused on the possibilities of predictably irrational meeting social data in a blog opinion. 

In Predictably Irrational (PI), Ariely deftly shows the workings of  behavioral economics in controlled laboratory settings. I was particularly impressed with chapters detailing clever experiments on the fallacy of supply and demand, the cost of zero cost, and the power of price. PI's simple experiments around free and zero certainly resonated. I'll often take a less than rational exchange when one side involves something for free. After similar reactions from a half dozen chapters, it began to seem almost too easy to formulate behavioral economics-driven hypotheses: first construct a laboratory situation for which rational and efficient self interest predict obvious behavior. Then, come up with alternatives that show the brain's “ability” to short-circuit optimal decisions. Voila! I must admit, though, I was underwhelmed by PI's experiments on decision-making under sexual stimulation in the influence of arousal. To think my blue collar Dad was actually practicing behavioral economics when he sat me down for the discussion nearly 40 years ago!

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