Humans are rational people. Ha! If you think that you obviously haven’t met any. Actually, people are rational, but in a very personal way. There’s a Robert Heinlein quote I’ll paraphrase because I can’t track it down. “People always do what they think is best, it’s just that best frequently is judged by criteria they aren’t conscious of.” They’ll say they wished they could’ve done something else that everyone knows is the right thing, but dig deep and ultimately they’ll use a criterion that may only make sense to them. If we all acted perfectly rationally there’d be no reason to invent Vulcans. We don’t, which is why our art and culture is so diverse, and why economics and finance don’t seem to make sense. Understand that people are rationally irrational and a lot of the world makes sense.

Someone doing something that appears to be bizarre will make sense at some level, even if it is because they are trying to please someone who isn’t there who never had that criterion. Many people base life choices on hopes of pleasing someone they are no longer in relationship with. Family is as good a source as any. We want them to like us because they didn’t back then, we guess at what they’d like, we’re probably wrong because we guessed wrong before, and we end up doing something that makes no sense in our lives and that looks bizarre to everyone else.
“I’m saving all of my money, because that’s what they’d expect me to do.”
“I’m making sure I have a nice wardrobe, because that’s what’s expected of me.”
“I’m going to prove that I can be independent and successful, because they said I couldn’t.”

Diving into deep introspection to challenge such actions can cost a lot in counseling fees. Going off on a year-long sabbatical may produce the same effect, and maybe cost about the same. One of my counselors pointed out that, like most people today, all I really needed was someone to share deep feelings and thoughts with ; and, he pointed out how rare that has become in our highly-individuated lives. The year-long sabbatical is the material of fantasies, memoirs, and movies; but one friend called in from Spain to reveal that it is no easier finding yourself when you’re thousands of miles from home, so you might as well take the time, save the money, and sit in your backyard. There’s enough to explore within, and no plane tickets are required. Though I will admit that my walk across Scotland was effective, for me.

There are three aspects of our irrational selves that influence personal finance: ourselves, the market, and the world.

An industry of financial professionals exist precisely because many people realize they are too irrational to manage their money, or at least they feel that way. Professionals, like Mike Brady, are known for being the calming, rational influence that keeps investors from over-reacting. Fear and greed sell well in the media, and financial professionals should primarily be swayed by data, not emotion. Individuals can also manage their money. The majority do; but part of financial success is based on how successfully they understand their motivations and risk tolerance. Understanding does not guarantee success, as the retraction of my early retirement proves, but understanding does improve the odds. (And yes, I’m an optimist; and yes, I know the risks and rewards for investing as an individual rather than with a professional. Want data to assess my decision? Check out figure L in my book, Dream. Invest. Live.)

The financial markets are run by a crowd that is by definition, professionals. And yet, the market reacts irrationally. If they all operated solely on data and used the same algorithms, there’d be nothing to differentiate them, and none would offer a competitive advantage. As each tries to get ahead of the rest, anticipation and extrapolation enter. Taken far enough, instead of reacting to official reports they react to estimates based on research, which means someone starts reacting to hints of how the research will come out, which leads to someone reacting to the possibility that someone will do research. It is only one example, but investments are sometimes judged by how many researchers are researching the stock. Another obvious example is the ripple that happens with the firing of one missile from one Middle East country towards another; though lately that is happening so frequently that everyone just takes it as the norm. Ah, but let news leak of a virus in a hospital and similar effects reverberate through the market.

We know the world needs help; but we just can’t agree on what help for which issues, who is responsible, and who’s going to pay for it. Rationally, the majority want the species to continue and thrive, but from that basis can spring commercial space ventures, Isil (Isis, Is – IsNot?), Occupy, and the localvore movement. Each has rational reasons for acting, but there will always be someone else who thinks they are irrational. There’s probably even a rational explanation for the US Congress, but my brain balks at describing what I suspect is happening there. Maybe after another glass of wine.

Anyone trying to understand the direction of our civilization, and how to find a place or a fulcrum within it is justified if they complain of headaches, frustration, and a touch of cynicism. That may actually be proof of having achieved an understanding of the fundamentals of the situation.

We, as a species, tend to muddle through. We, as individuals, have to decide how to arrange our days and lives to fit. There’s a fantasy world where you make plans when you are twenty based on a world you’ve witnessed for several years, and have those plans work unchanged for the next half century or so. The change in the world is accelerating. Plans based on the lifespans of mortgages run into scenarios in which there will be societal, political, and environmental upheavals large enough to require a new perspective. Write plans in pencil, or into a file that can be edited. Remember though that the fact that is less likely to change is our basic nature as rationally irrational beings. Write that in ink. Lock it into a read-only file. Chisel it in stone. It is in you, and me, and us; and the ability to be simultaneously rational and irrational may be the reason we will adapt and survive.