Friday, September 5, 2008

Be the First to Order in a Restaurant

I was recently pointed to a fascinating book called Predictably Irrational, by Dan Ariely. Among other things, I learnt that when ordering food in a restaurant, I should try to order first to maximize the odds that I’ll enjoy my meal. Huh?

In a series of experiments, Ariely determined that many of us have a tendency to order something different from everyone else at our table to show our individuality. Other people have a tendency to order the same food as others to show solidarity. Either tendency leads to ordering a sub-optimal choice.

Ariely’s experiments showed that when people write down their orders without knowing what others at their table ordered, they enjoy their meals more. In the ordering out loud case, only the first person to order enjoyed his meal as much as those who wrote their orders down.

This is just one of the many ways that people are consistently irrational in a predictable way. I would say that being too afraid of short-term investing losses is another way that people are predictably irrational. To paraphrase Warren Buffett, I would rather make a lumpy 10% than a smooth 7%.

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