Chapter 1

The Truth about Relativity

Why Everything Is ­R elative—Even
When It Shouldn’t Be
Chapter 1 CONTINUED
Chapter 1 CONTINUED
 Chapter 2

The Fallacy of Supply

and Demand
Why the Price of P
­ earls—and Everything ­E lse—
Is Up in the Air

Average prices paid for the various products for each of the five groups of
final digits in social security numbers, and the correlations between these
digits and the bids submitted in the auction.

Range of last two digits of SS number

Products 00–19 20–39 40–59 60–79 80–99 Correlations*
Cordless trackball $8.64 $ 11.82 $13.45 $21.18 $26.18 0.42
Cordless keyboard $16.09 $26.82 $29.27 $34.55 $55.64 0.52
Design book $12.82 $16.18 $15.82 $19.27 $30.00 0.32
Neuhaus chocolates $9.55 $10.64 $12.45 $13.27 $20.64 0.42
1998 Côtes du
Rhône $8.64 $14.45 $12.55 $15.45 $27.91 0.33
1996 Hermitage $11.73 $22.45 $18.09 $24.55 $37.55 0.33

*Correlation is a statistical mea­sure of how much the movement of two variables is related. The
range of possible correlations is between -1 and +1, where a correlation of 0 means that the change
in value of one variable has no bearing on the change in value of the other variable.
 Chapter 5

The Influence of Arousal

Why Hot Is Much Hotter Than We Realize

Table 1
Rate the Attractiveness of Different Activities

Question Nonaroused Aroused Difference,

percent
Are women’s shoes erotic? 42 65 55
Can you imagine being attracted to
a 12-­year-­old girl? 23 46 100
Can you imagine having sex with a
40-­year-­old woman? 58 77 33
Can you imagine having sex with a
50-­year-­old woman? 28 55 96
Can you imagine having sex with a
60-­year-­old woman? 7 23 229
Can you imagine having sex with
a man? 8 14 75
Could it be fun to have sex with
someone who was extremely fat? 13 24 85
Could you enjoy having sex with
someone you hated? 53 77 45
If you w
­ ere attracted to a woman
and she proposed a threesome
with a man, would you do it? 19 34 79
Is a woman sexy when she’s sweat-
ing? 56 72 29
Is the smell of cigarette smoke
arousing? 13 22 69
Would it be fun to get tied up by
your sexual partner? 63 81 29
Would it be fun to tie up your
sexual partner? 47 75 60
Would it be fun to watch an attrac-
tive woman urinating? 25 32 28
Would you find it exciting to spank
your sexual partner? 61 72 18
Would you find it exciting to get
spanked by an attractive woman? 50 68 36
Would you find it exciting to have
anal sex? 46 77 67
Can you imagine getting sexually
excited by contact with an animal? 6 16 167
Is just kissing frustrating? 41 69 68
 Chapter 5 CONTINUED

Rate the Likelihood of Engaging in Immoral

Behaviors Like Date Rape (a Strict Order
of Severity Is Not Implied)

Question Nonaroused Aroused Difference,

percent
Would you take a date to a fancy
restaurant to increase your chance
of having sex with her? 55 70 27
Would you tell a woman that you
loved her to increase the chance
that she would have sex with you? 30 51 70
Would you encourage your date to
drink to increase the chance that
she would have sex with you? 46 63 37
Would you keep trying to have sex
after your date says “no”? 20 45 125
Would you slip a woman a drug to
increase the chance that she would
have sex with you? 5 26 420

Table 3
Rate Your Tendency to Use, and Outcomes
of Not Using, Birth Control

Question Nonaroused Aroused Difference,

percent
Birth control is the woman’s re-
sponsibility. 34 44 29
A condom decreases sexual plea­
sure. 66 78 18
A condom interferes with sexual
spontaneity. 58 73 26
Would you always use a condom if
you didn’t know the sexual history
of a new sexual partner? 88 69 22
Would you use a condom even
if you ­were afraid that a woman
might change her mind while you
went to get it? 86 60 30
 Chapter 10

The Power of Price

Why a 50-­C ent Aspirin Can Do What
a Penny Aspirin C ­ an’t

Word Puzzles

Lunike
epsoop
quinue
lefziz
frivey
quiety
nyglik
yennit
rancor
tuppil
bewolb
raclan
rethie
svalie
berkam
 Chapter 11

The Context of Our

Character, Part I
Why We Are Dishonest, and What
We Can Do about It

Condition 1 Control =    32.6   

Condition 2 ­Self-­check =        
Condition 3 ­Self-­check + shredding =        
Condition 4 ­Self-­check + shredding =        
  +money jar

Look at your watch, note the time, and start searching for two
numbers in the matrix below that will add up to exactly 10.
How long did it take you?
1.69 1.82 2.91
4.67 4.81 3.05
5.82 5.06 4.28
6.36 5.19 4.57
 List of Collaborators

On Amir
On joined MIT as a PhD student a year after me and became “my” first student.
As my first student, On had a tremendous role in shaping what I expect from
students and how I see the professor-student relationship. In addition to being
exceptionally smart, On has an amazing set of skills, and what he does not know
he is able to learn within a day or two. It is always exciting to work and spend
time with him. On is currently a professor at the University of California at San
Diego.

Marco Bertini
When I first met Marco, he was a PhD student at Harvard Business School, and
unlike his fellow students he did not see the Charles River as an obstacle he should
not cross. Marco is Italian, with a temperament and sense of style to ­match—an
overall great guy you just want to go out for a drink with. Marco is currently a
professor at London Business School.

Ziv Carmon
Ziv was one of the main reasons I joined Duke’s PhD program, and the years we
spent together at Duke justified this decision. Not only did I learn from him a great
deal about decision making and how to conduct research; he also became one of
my dear friends, and the advice I got from him over the years has repeatedly proved
to be invaluable. Ziv is currently a professor at INSEAD’s Singapore campus.

Shane Frederick
I met Shane while I was a student at Duke and he was a student at Carnegie Mel-
lon. We had a long discussion about fish over sushi, and this has imprinted on me
a lasting love for both. A few years later Shane and I both moved to MIT and had
many more opportunities for sushi and lengthy discussions, including the central
question of life: “If a bat and a ball cost $1.10 in total, and the bat costs a dollar
more than the ball, how much does the ball cost?” Shane is currently a professor
at MIT.
 James Heyman
James and I spent a year together at Berkeley. He would often come in to discuss
some idea, bringing with him some of his recent baking outputs, and this was al-
ways a good start for an interesting discussion. Following his life’s maxim that
money isn’t everything, his research focuses on nonfinancial aspects of marketplace
transactions. One of James’s passions is the many ways behavioral economics could
play out in policy ­decisions, and over the years I have come to see the wisdom in this
approach. James is currently a professor at the University of St. Thomas (in Min-
nesota, not the Virgin Islands).

Leonard Lee
Leonard joined the PhD program at MIT to work on topics related to e-commerce.
Since we both kept long hours, we started taking breaks together late at night, and
this gave us a chance to start working jointly on a few research projects. The col-
laboration with Leonard has been great. He has endless energy and enthusiasm, and
the number of experiments he can carry out during an average week is about what
other people do in a semester. In addition, he is one of the nicest people I have ever
met and always a delight to chat and work with. Leonard is currently a professor at
Columbia University.

Jonathan Levav
Jonathan loves his mother like no one ­else I have met, and his main regret in life is
that he disappointed her when he didn’t go to medical school. Jonathan is smart,
funny, and an incredibly social animal, able to make new friends in fractions of
seconds. He is physically big with a large head, large teeth, and an even larger
heart. Jonathan is currently a professor at Columbia University.

George Loewenstein
George is one of my first, favorite, and ­longest-­time collaborators. He is also my
role model. In my mind George is the most creative and broadest researcher in be-
havioral economics. George has an incredible ability to observe the world around
him and find nuances of behavior that are important for our understanding of hu-
man nature as well as for policy. George is currently, and appropriately, the Herbert
A. Simon Professor of Economics and Psychology at Carnegie Mellon University.

Nina Mazar
Nina first came to MIT for a few days to get feedback on her research and ended up
staying for five years. During this time we had oodles of fun working together and
I came to greatly rely on her. Nina is oblivious of obstacles, and her willingness to
take on large challenges led us to carry out some particularly difficult experiments
in rural India. For many years I hoped that she would never decide to leave; but,
alas, at some point the time came: she is currently a professor at the University of
Toronto. In an alternative reality, Nina is a h
­ igh-­fashion designer in Milan, Italy.
 Elie Ofek
Elie is an electrical engineer by training who then saw the light (or so he believes)
and switched to marketing. Not surprisingly, his main area of research and teach-
ing is innovations and ­high-­tech industries. Elie is a great guy to have coffee with
because he has interesting insights and perspectives on every topic. Currently, Elie
is a professor at Harvard Business School (or as its members call it, “The Haaar-
vard Business School”).

Yesim Orhun
Yesim is a true delight in every way. She is funny, smart, and sarcastic. Regrettably,
we had only one year to hang out while we ­were both at Berkeley. Yesim’s research
takes findings from behavioral economics and, using this starting point, provides
prescriptions for firms and policy makers. For some odd reason, what really gets
her going is any research question that includes the words simultaneity and endo-
geneity. Yesim is currently a professor at the University of Chicago.

Drazen Prelec
Drazen is one of the smartest people I have ever met and one of the main reasons
I joined MIT. I think of Drazen as academic royalty: he knows what he is doing,
he is sure of himself, and everything he touches turns to gold. I was hoping that
by osmosis, I would get some of his style and depth, but having my office next
to his was not sufficient for this. Drazen is currently a professor of management
science at MIT.

Kristina Shampanier
Kristina came to MIT to be trained as an economist, and for some odd but wonder-
ful reason elected to work with me. Kristina is exceptionally smart, and I learned
a lot from her over the years. As a tribute to her wisdom, when she graduated from
MIT, she opted for a nonacademic job: she is now a ­high-­powered con­sul­tant in
Boston.

Jiwoong Shin
Jiwoong is a yin and yang researcher. On one hand he carries out research in stand-
ard economics assuming that individuals are perfectly rational; on the other hand
he carries out research in behavioral economics showing that people are irrational.
He is thoughtful and ­reflective—a philosophical ­type—and this duality does not
faze him. Jiwoong and I started working together mostly because we wanted to
have fun together, and indeed we have spent many exciting hours working together.
Jiwoong is currently a professor at Yale University.
 Baba Shiv
Baba and I first met when we ­were both PhD students at Duke. Over the years Baba
has carried out fascinating ­research in many areas of decision making, particularly
on how emotions influence decision making. He is terrific in every way and the kind
of person who makes everything around him seem magically better. Baba is cur-
rently a professor at Stanford University.

Rebecca Waber
Rebecca is one of the most energetic and happiest people I have ever met. She is
also the only person I ever observed to burst out laughing while reading her mar-
riage vows. Rebecca is particularly interested in research on decision making ap-
plied to medical decisions, and I count myself as very lucky that she chose to work
with me on these topics. Rebecca is currently a graduate student at the Media
Laboratory at MIT.

Klaus Wertenbroch
Klaus and I met when he was a starting professor at Duke and I was a PhD stu-
dent. Klaus’s interest in decision making is mostly based on his attempts to make
sense of his own deviation from rationality, whether it is his smoking habit or his
procrastination in delaying work for the plea­sure of watching soccer on tele­vi­sion.
It was only fitting that we worked together on procrastination. Klaus is currently
a professor at INSEAD.