By Gauri Kanodia

I don’t know about you, but I’ve always been an irrational person. When it comes to the important things, like school, and the next show to binge on Netflix—sure, perhaps I try to turn myself into what society deems a logical thinker. But, it’s the little irrational things I convince myself of, like my dreams, superstitions, and the “5 more minutes” of sleep in the morning, that ultimately influences the bulk of my reality. 

However, it might not be just me. Do you consider yourself a rational thinker? Well, Orson Scott once said that our trust in rationality makes us irrational. Nowhere does that statement hold truer than in the field of economic sciences. We find solace in models and theories based on homo economicus, an assumption of individualistic rational optimization of utility. In fact, traditional economic theory still holds that individuals use rational calculations to make rational decisions, in accordance with their self-interest, to maximise utility and benefit. 

However, in recent years, the extent to which traditional theory is disconnected from reality has become striking, and a new field known as behavioural economics has emerged, proposing that the assumption of homo economicus may be inherently irrational. After all, if anyone can be an agent in the market, why do we only consider the actions of the economic man? To quote Richard Thaler, often touted the father of behavioural economics, “Economics is supposed to be a theory of everyone, not only experts”.

Delving further into this line of inquiry, can the economic man even exist? After all, as human beings, we are faced with time constraints and limited brain power. This leads to the frequent utilisation of mental shortcuts, or simple rules of thumb, known as heuristics, to make often suboptimal decisions. In fact, heuristics play a much larger role in the world around us than we’d like to think. It’s a scary thought, to think our lives are controlled by calculated guesses, fickle beliefs and mere approximations, all of which often get lost in the midst of the hard science and ‘ceteris paribus’ held dear by economists.

Take Wall Street for example. As evidenced by the recent Gamestop fiasco, irrationality unequivocally rules the markets of today. Reddit’s revenge was an example of ‘ideological investing’, where the individual investors’ loss or gain was inconsequential in the face of their opposition to Wall Street and the economic inequality the institution represents. Even if their motive was personal profit, it was clear that the decisions being made in the midst of the commotion were rushed and uninformed, not traits associated with the rational man. Seeing as the stock crashed from USD 347 at its peak, to today’s dismal USD 40 (accurate as of 12:44AM 22/02/21), it is evident that the decisions that were made were suboptimal at best. The economic man, on the other hand, as the assumption states, would be perfectly informed and clearly be opposed to ideological investing, choosing instead the rational option of purchasing stocks that ensure future personal gain.

Let’s take a look at another evidence of irrationality that perhaps more of us can relate to — intertemporal choice. In its essence, it is a decision made regarding the timing of consumption, and can result in suboptimal decision making. We tend to assume that consuming something right now, in the present, is much more valuable than saving it for the future, even though consuming it in the future would yield the same value. Disregarding future consumption is, of itself, irrational. For example, rationally, the value of future consumption of a delicious plate of Aglio Olio remains the same as its present value, however with our telescopic vision of the future, we feel like eating it now is a much better idea than saving it for later. Sometimes we may even succumb to a phenomenon known as hyperbolic discounting, where 1 slice of chocolate cake right now sounds much better than 2 slices tomorrow, even though 2 slices would be maximising gains.

But living in a purely rational world doesn’t sound fun, does it? 

Imagine never eating that chocolate cake because homo economicus tells us that discounting future consumption is irrational. As for Gamestop, sure, the stock tanked, but Wall Street took a hit too. The intended message was successfully relayed, and important conversations were sparked. 

Ultimately, there are decisions in life that require rationality so that we can maximise utility. Game Theory is an area of study that aims to teach us this very skill. But sometimes, it takes a bit of irrationality to enjoy today’s reality. That’s why I urge you; go ahead. Consider doing the thing that maybe doesn’t make complete sense. Take a risk*.

*The author and publication are not liable for any injury, damage, loss, or accident, that may result from this advice. Irrationality and idiocy are not the same thing.