A fantastic book on behavioral psychology: Sway ($1,000 giveaway)

Ramit Sethi

Note: There is a $1,000 giveaway at the bottom of this post.

Do you think you could tell the difference between a Coke and Pepsi?

Of course you do.

When I was an RA in college, my residents insisted they could, so I bought Cokes, Diet Cokes, Pepsis, Diet Pepsis, and a generic soda to test them. Of those who tested, every one insisted they could tell the difference.

Only 3 out of 47 could.

In fact, most of us can’t even tell the difference between Coke and Pepsi in a blind test — yet when presented with data indicating how we routinely fail to tell the difference, we insist that we’re different.

Today’s book review is about a remarkable book, Sway, that details how we’re irrational, yet we fail to acknowledge it. Ori Brafman, a friend of mine, and his brother Ram Brafman write about how we insist that we behave methodically and purposefully — that we have an idea, and we act on it. Unfortunately, this ignores decades of research and great stories showing that our behavior is influenced by even the slightest of changes to our environment: We eat more because the plate is bigger, we remember things because they were presented in color on a loud commercial, and we invest in things because our friend told us about them.

I got a review copy of this book and thought it was superb even before it became a New York Times and Wall Street Journal bestseller.

As this fascinating article from Harvard Magazine points out, ‘Poor families are often deterred from applying to colleges for financial aid because the forms are too complicated. ‘An economist would say, ‘With $50,000 at stake, the forms can’t be the obstacle,’ he says. “But they can.'” (And there’s data to prove it.)

I love exploring rationality and relating it to personal finance. For example, many of my friends at Stanford graduated with an economics degree, and many of them assumed that because they knew econ, they understood personal finance. In fact, my friend a bulge-bracket investment bank recently told me about an internal study they ran on their highly compensated portfolio managers. It turns out that the portfolio managers’ asset allocations were no better than average — an astonishing finding considering (1) how bad most people are at investments, (2) that these PMs are paid millions of dollars per year to manage professional portfolios, and that (3) asset allocation is responsible for 90%+ of returns.

Sway is a book of fascinating anecdotes about irrationality, psychology, and financial findings. It’s a key book to understanding why we behave the way we do — and to changing our own behavior. I’ll pull out some of the most interesting findings here.

How A Hot Girl Can Cost You $10,000
You’ve seen me write about how credit card companies (and any good company) test their marketing to find the optimal solution. Here, for example, are two mailings that my friend received. Can you spot the differences?

Mastercard offer 2Mastercard offer 1
The Brafmans have a new wrinkle to add to this.

“In South Africa, a consumer lending bank wanted to push personal loans to 50,000 of its customers. Working together with a team of economists, the bank crafted several variations on the same basic loan offer letter. The different versions were randomly assigned to recipients and mailed off without the recipients ever knowing that the letter they had received was part of an experiment.

The letters included different interest rates (ranging from 3.25% to 7.75% per month); some featured a comparison to a competitor’s rate, others a giveaway…and still others a photo of either a man or a woman’s pleasant, smiling face.

Now, you’d think that the customer would evaluate the offer based purely on interest rate and the specific terms of the loan…The unexpected effect kicked in with the least relevant variation: the inclusion of a picture of the smiling face in the corner. Men who received a picture of one of four smiling women were much more likely to sign up for the loan than the men who received a picture of a smiling man. The magnitude of this effect is ‘about as much as dropping the interest rate 4.5 percentage points.'” (Page 74)

Malcolm Gladwell’s Blink does a great job of highlighting irrelevant information and its effect on our decision-making, but I found several interesting studies in Sway that I hadn’t heard of before.

Why We’re Afraid of Having Anything Taken Away From Us– And Why We Pay Dearly
We’re more motivated by loss than by gain.

“Companies like Avis and Hertz, facing the challenge of selling a product that is both useless and overpriced, have capitalized on this powerful effect. When we rent cars, our credit cards — not to mention our own car insurance — automatically cover us should anything go wrong with the vehicle. But the rental companies push additional coverage that not only is redundant but would cost a whopping $5,000 on an annual basis. But…the sales rep asks whether we’d like to buy the loss damage waiver. When we hear those words, our minds begin to whir: What if I have bad luck and end up in a wreck? What if, for some reason, my credit card won’t cover me after all?”

This simple technique also explains why we pay more for subscriptions that we don’t fully use when it would be cheaper to pay a la carte: Beyond just convenience, we worry about being overcharged a huge amount one month.

The framing of an offer is important. People criticized Coke when they tested raising their vending machine prices during warm weather to test price elasticity. Imagine the reaction had they lowered prices during cold weather. Whenever I write an email, I try not to use negative phrases. Again, the framing matters, whether in politics or personal finance.

Loss Aversion and Commitment — Like Pringles, Once You Pop, You Can’t Stop
I’m sorry, but I had to make the Pringles reference. Anyway, the authors show how loss aversion, combined with commitment, can form a powerful persuasive force. In fact, gangs and cults use this quite effectively: They make it difficult to join the group (using increasingly difficult initiation rites) and, once you’re in, make it difficult to leave (by demanding you tithe all your money or promising physical retribution if you try). In Sway, the Brafmans write about an auction held each year in a Harvard professor’s class, where he auctions off a $20 bill. The only two rules:

“Bids are to be made in $1 increments. The second rule is…the runner-up must still honor his or her bid, while receiving nothing in return.” You would expect that people would bid up to $20 for the bill, and in fact the bidding escalates quickly until about $12 to $16. “Without realizing it, the two students with the highest bids get locked in. ‘One bidder has bid $16 and the other has bid $17,’ Bazerman says. ‘The $16 bidder must either bid $18 or suffer a $16 loss. The students continue bidding, “$21, $22, 23, $50, $100, up to a record $204. The deeper the hole they dig themselves into, the more they continue to dig.” (Page 26)

Once we commit to something, we use adaptive self-serving biases to adaptively construe results to support our decision. For example, in a classic case of post-decision attitudinal adjustment, once you buy a Honda Accord, you’ll be more likely to notice Accords and to seek our confirming evidence that you made the right choice (such as reading positive reviews and talking to other happy owners of Hondas). Not surprisingly, this affects us even in conditions of life and death, as the Brafmans compare LBJ’s commitment in Vietnam to President Bush’s commitment in Iraq.

The More We Pay For Things, The More We Like Them
The Brafmans define value attribution as “our tendency to someone or something with certain qualities based on perceived value, rather than objective data.” Why do you spend $500 on a Coach bag or $2 more on Jiffy peanut butter? Those are easy examples, but let’s take a few others:

  • Why D.C. subway passengers walked past Joshua Bell’s free violin concert, when he normally charges over $1,000/minute to play (page 42). In a beautiful example of social psychology, the Washington Post asked famous violinst Joshua Bell to bring his $3.5+ million Stradivarius to L’Enfant Plaza in Washington D.C. and play like a normal panhandler. We like to think we can recognize quality when we see it, but we’re more influenced by external factors than by how we think we’d behave.
  • Why Sobe makes you smarter — if you pay more (page 48). When students were given a mental acuity test and told that the drink SoBe would help with their results, they were put in 3 conditions: No SoBe, SoBe that cost $2.89, and SoBe that cost only $0.89. Why did SoBe drinkers who paid more perform much better than SoBe drinkers who paid less?
  • If you discount tickets, you’ll get lower attendance (page 50). In a study of Ohio State’s theater department, “the people who paid full price attended significantly more shows than those who received either [a] $2 discount or [a] $7 discount.” In fact, attendance wasn’t linear: If you got a discount, whether it was $2 or $7, you attended less — just by virtue of the fact that you received a discount. If you’re an entrepreneur or consultant wondering what to charge for your services, let this be a lesson to you: In almost every case, don’t cut your prices.

The key takeaway here is that we value what we pay for. We love to believe that we behave in an A–>B model: We have an attitude (“I like charity”) and our behavior follows (“…so I volunteer at a soup kitchen”). We rarely acknowledge that many of our attitudes are formed by our behavior in a B–>A relationship: “I keep volunteering at this soup kitchen (because it’s close by / my girlfriend wants me to / I need school credit / I was asked to), so I must think it’s important. For more on this, read about attribution theory.

Similar Books I’d Recommend
If you’re interested, I’d consider Sway plus these other books, which are some of my favorites when it comes to social and behavioral psychology:

  • Moneyball
  • Judgment in Managerial Decisionmaking (this is a horrible title for an excellent book)
  • Influence: The Psychology of Persuasion
  • Mindless Eating: Why We Eat More Than We Think

General Thoughts On Sway: I Like It
The book isn’t perfect: Though the stories are fascinating, at times the book rambles and struggles to link back to the chapter’s original point. Also, the authors are a little too fond of clever social-psychology phrases.

Overall, I’m a huge fan. There were dozens of studied cited that I hadn’t heard about, and Sway uses these examples to great effect to point out examples of irrational behavior and help us understand why we act the way we do. It’s also an excellent guide for understanding why others act the way they do, and I’ve found myself thinking back to the examples while in meetings when people are acting in a particular way. It’s now permanently on my bookshelf, under the psychology section.

* * *

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  1. Robert

    Wouldn’t buying a book for $15 just to get a minuscule chance at $1000 be irrational?

    You could say the book itself is worth $15 as well, and the chance for $1000 is merely a nice benefit, but I would disagree. Instead, I’ll reserve this book at my local library.

  2. christian

    nice post.
    however, a book for only $15 can’t be good 😉

  3. Sam

    3 out of 47? Surely you’d expect that if people couldn’t tell the difference, they’d be “guessing,” and roughly equal numbers of people would get it right vs. wrong (or equal per choice).

    3 out of 47 is people actively choosing the wrong one. Are you sure you didn’t switch the cups?

  4. russ

    free gas giveaway? ZOMG. Give me 8 books.

    Ramit started up the Ironical Machine. Touche, Sir.

  5. Julian

    Yeah, 3 out of 47 sound a little bit weird…

  6. Jeff

    I like this blog to begin with, but I REALLY like soda…so when I saw that the article began with talk of a “Pepsi Challenge” so to speak…it caught my eye immediately.

    I read a lot of business books, so this will very likely wind up on my reading list. It reminds me a bit of “Blink” by Malcolm Gladwell.

    Ramit, I hope you don’t mind that I talked about your blog on MINE…since I blog about soda! (And I don’t make a nickel doing it, so maybe you SHOULD teach me to be Rich! LOL!)

    Ramit Sethi gets free press from “Soda Is Good” here:

  7. Nico

    I’ll pick up the book because it sounds facinating (I liked Freakonomics for similar reasons), but free gas isn’t useful to me: I’m a cyclist. I’d rather have the cash 😉

  8. neshura

    “Chances of winning are…” …?
    “No purchase necessary…” …?

    “Sway” will arrive at my library system shortly and will be delivered to my local branch for me to pick up and read at my leisure. I’ll be reading it at the same as the Girard Reader, which should make an interesting counterpoint. It’s irrational to purchase a book for a single use, rather than to allow the library to purchase it and lend it out to all the people on the (lengthy) wait-list.

    Lotteries are only rational on the individual level if there is transparent information about one’s chances of winning such that one can take a calculated risk. There’s a chance that nobody will buy Sway for this lottery except a single person who says to themselves, “Gee, $15 to get $1000, that sounds like a winner to me!”. That one person will win and probably conclude that making financial decisions without transparency of information Totally Pays Off. “I won, therefore it was rational!”


  9. Jackson

    I bought Sway the day it came out and read it quickly thereafter. I guess I’m out of luck for the lottery?

    It is a very interesting book though.

  10. Devin Reams

    As I said in my review, if you liked The Tipping Point or Freakonomics then you’ll enjoy this quick, 200+ page read.

  11. noah


    honestly? why is it that every time someone tries to do something nice, thoughtful, different, creative to stir people (rationally or irrationally) there is that “one” guy who has to criticize it?

    do you hate it when it’s sunny and then complain when it rains?

  12. Ian Parker

    At the risk of being the sole irrational person, I purchased the book. In my defense, I would have purchased it anyhow, as I thoroughly enjoyed “Blink” by Malcolm Gladwell, and this seems to be in a similar vein. I also recommend “Fooled by Randomness” and “The Black Swan”, both by Nassim Nicholas Taleb.

    Great review, Ramit. Be well.

  13. Jason

    I emailed a doctoral candidate at Harvard Business School on good behavioral economics books and he told me to read Judgment in Managerial Decisions first, so I’m doing that before checking out Sway or Nudge or the other newer books on the subject. Looks very good though.

    neshura – while it’s wonderful that you are taking advantage of the library to read Sway at no cost to yourself, that does not make it irrational to purchase a book for single use. When you buy a book you have access to it all the time, you can take notes in it and you can lend it to other people – all very useful things. The point of this blog post was to get people excited about the book and purchase it for themselves. The gas giveaway is just an added incentive.

  14. JaM

    Behavioral economics is very interesting, but does this book mention ways to apply logic to avoid making irrational decisions?
    I highly recommend “Predictably Irrational” by Dan Ariely which came out earlier this year for those interested in this topic.

    American consumerism is driven by irrational consumption. Books like these might smarten the people up to the point of aiding the ongoing recessionary trend.

  15. Matt

    I purchased the book and recommended that my library purchase a copy. They’re usually pretty good about honoring requests.

  16. Writer's Coin

    Influence and Moneyball are both fantastic book. I’ll be checking Sway out for sure.

  17. talia_tx

    Ah, if only I could time travel, I’d totally win this one 🙂

  18. talia_tx

    Let me qualify that… I’d totally win if I could time travel and no one else could, and that anyone Ramit told about this 5+ days ago didn’t enter.

    Obligatory smilee 🙂 As this was a fun article to read. And I’ll add the book to my Amazon wishlist to possibly get when I have the spare $$$

  19. John

    All mail-in entries must be postmarked on or before June 30, 2008 and received by June 27, 2008.

    So… have to receive the 3×5 postcard BEFORE I mail it?

  20. Jonathan B.

    Sounds like a cool book.

    In regards to Coke/Pepsi, I know I can tell the difference. I’ve done tests before too, although it was only Coke & Pepsi, not the diet and generic brands too.

  21. Chris

    The fact that 3 out of 47 people couldn’t tell the difference between Coke and Pepsi is meaningless. Coke is the real thing and is a far superior product to its sub-par Pepsi. I’d say more like 25% can tell the difference, if not more.

  22. Kevin Franklin

    Wow…so Ramit is breaking out the irony AND making money by using his Amazon referral link to this book…Good show.

  23. Ramit Sethi

    Gosh, Kevin, you’ve figured it out! I’m probably making insane profits from the the 3 hours it took me to write the review, plus the 2 hours to iron out the logistics of this = 5 hours for a few dollars in referral fees. Yes, that’s why I wrote the review. I think you’ve figured out my entire business model! Do you want to run my next company?

    To everyone else who’s not annoying and enjoyed a good book review and a fun little offer, thanks.

  24. Sean Blanda

    Well, this post shut me up.

  25. Pierre

    Thanks for the post, Ramit. fyi: i selected the Judgment in Managerial Decisionmaking, being somewhat “academically inclined” in my selection, and interested in this area for ~2 months or so.

    I am interested in the nature of time and context in these selections. i,e When you read an ad and select the offer, would you have made a different selection if you had taken twice as long to select (assuming other options are on the table?) Should that become a rule of thumb? This is particularly interesting in auction-contexts, where the auctioneer controls the frequency of bids, negotiations / arguments, the purchase of real estate, etc. Also, assuming patrons of the DC subway appreciate the musical performance of Joshua Bell (in the echo chamber of the subway lobby), the intention is to get from A to B, not stop and listening to i,e “another busker”, regardless of the time of day (i,e rush hour vs non-rush hour); where one is psychologically preparing for interactions at B, not between A and B. Of course, much to the loss of the majority numb to their environment.

    Similarly, I had a great mortgage benefit option at the peak of last year’s housing market, which I let run-out and now (in hindsight gladly) relinquished — as the real estate market has dropped and is likely to continue. There was lots of pressure from work, family and friends to take it within the timeframe offered. Now, I sit more comfortably, knowing that if the employer values my services, they will appreciate the time in which they offer the “benefit” and re-offer i,e in 1 years’ time.

  26. Josh

    Thanks for the review, I’ll prolly check out the book because of it.

    However, in regards to “Joshua Bell’s free violin concert”, seriously, what kind of scientific experiment is that? (if it can even be called one). How many of those passerbys actually go to those type of concerts or listen to that music…
    It’s kind of hard to recognize outstanding quality if have no idea about the subject itself….or am I missing the obvious here?

  27. Jared

    I ordered the book because it sounded interesting and i’m looking forward to getting through it. The gas offer is merely an insentive to buy it early as opposed to waiting. I’m curious to know how many people bought the book and submitted their receipt and how many didn’t consider the offer because they considered it unlikely to win gas.

    I’ve seen Joshua Bell play at Benaroya Hall (incredible) and it doesn’t suprise me that taken out of a context of a symphonic hall that a passerby’s do not appreciate the same quality art with different presentation and audience. Very interesting expirament.

    Ramit, been enjoying your blog. And I generally dislike blogs and bite sized information blog culture.

  28. rmark

    ‘and that (3) asset allocation is responsible for 90%+ of returns.’

    90% of the variation of returns according to Brinson, Hood, Beebower ‘ Determinants of Portfolio Performance (1986).

  29. Tim

    Who won the prize?

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  32. Kalyan

    It is a very interesting post. I have been following the blog closely but I am a lurker. The Washington Post experiment is not totally fair. I have never been to DC and am not aware how many people who like violin / classical music pass that location where he was playing. I would think a good number of people would not even care about a violin and it is *NOT* a reflection on the quality of the artist nor a measure of how people *perceive* quality. It is the mode they are not interested in – here, the violin.

    What do you think?

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  34. Rob

    Many of the behavioural psychology phenomenon in this book are also covered in a book called “Supercrunchers – why thinking by numbers is the new way to be smart”…

    (yes, it’s a late comment, but I only just got around to reading the post)

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