There’s lots of evidence that we aren’t rational with money.
Many people writing about money and psychology think people “ought” to be more rational. Actually, it isn’t as simple as that, there are at least three problems with it
First, sometimes it would be better to be more logical, but in other cases we’re better off making “gut instinct” decisions, as in this book.
Second, no decision is wholly rational or emotional. Have you ever had the feeling somebody was watching you? That is an observation that you’ve made sub-consciously, it is a thought, a bit of a logical process and the first thing you’re conscious of is a feeling. On the other hand, you can often take a sub-conscious dislike to somebody, but the first thing you notice is something “rational”, like they seem argumentative. It’s an emotional reaction but the first thing you notice is your “logical” conclusion.
Feelings and thoughts are not easily separated, and one isn’t necessarily better than the other, among other things because both take part in nearly every decision. There’s a whole book about it, which shows among other things what happens if we lose the “intuitive” and “emotional” sides of brain and try to work only on logic.
And if somebody tells you, “ah, but you should use logic and balanced rational thought, ignoring emotions for important decisions”, ask them what is more important than choosing a mate. Follow that up with asking them whether they objectively evaluate each facet of somebody’s personality, logically balance good against bad and make a rational judgment of the ultimate utility of the action every time they are considering asking somebody out!
Those are reasons why logical isn’t always applicable. The third issue is that whether we “ought to” or not, we don’t have a choice. There is a really good reason why we don’t stop to be “rational” most of the time – it’s because we can’t. We didn’t evolve that way by natural selection.
We are basically hunter gatherers in our brain and emotions. Imagine you are out hunting or gathering. The grass moves and it isn’t the wind, you think to yourself. What do I want to do about it?
The main options for “what do I want to do” are:
√ I want to eat it.
√ I want to prevent it eating me.
√ I want to mate with it.
√ I want to fight with it for the right to mate with somebody else.
√ I want to cooperate with it to, hunt/gather/mate with/fight-off something.
That’s pretty much it. Now, think about it, do you want to draw up a table and calculate probabilities of each option, based on your perception of the size of the grass movement and an estimate from that of the size of the object, and work out each options value to you in terms of how hungry you are, whether you currently have a mate, your strength (and consequently your chances of fighting off a predator or competitor) and so on? Of course you’ll still have to assign values to everything from the estimated size and consequent danger posed by different predators, your own strength relative to a range of different opponents, your charisma if it turns out to be a potential mate and so on.
So you have to guess at lots of unknowns, and then fit them into a formula, then solve the formula (all in your head) and then you have to go with the final probability estimate.
If you did want to do all that, I’m afraid you’re too late. Here is what happens.
We’re all the descendants of people who made decisions in time. The people who didn’t make their minds up fast, died. If they died they didn’t have many offspring.
Humans were bred to make quick decisions.