Reasonably Irrational

I’ve been trying for some time to heap scorn on one of the central tenets of orthodox economics, namely the concept of the “rational investor.” Anyone who follows the markets can see quite clearly that investors behave irrationally at times, or have we forgotten the dot-com bubble? But the theory remains firmly in place, not because economists are stupid or because they’re deliberately trying to mislead people, but because the whole structure of mainstream economic theory would collapse without it.

Put simply, economists believe that economies and markets function efficiently because people naturally choose the courses of action that are most likely to give them the greatest benefit. In this obviously naive belief, economists are clinging to the ideas of those theorists of the so-called Age of Reason, such as John Locke and Adam Smith, who laid the foundations of our modern political and economic systems. For Locke and Smith and their like-minded contemporaries, “reason” alone is sufficient to guide all human life and unlock all the mysteries of existence, while “unreason” is all bad and a great impediment to our progress as individuals and as a society.

In particular, the thinkers of the 18th-century “Enlightenment” – many of them Deists, including a number of the founding fathers of the United States – identified “unreason” with traditional and “emotional” forms of religion. After all, they were keenly aware of the violent upheavals of the 15th and 16th centuries, when partisans on both sides of the Reformation engaged in repeated and vicious wars to promote or defend their theological positions.

These cutting-edge 18th-century opinions still hold sway with a large number of contemporary thinkers. Richard Dawkins, for example, in “The God Delusion,” voices the opinion that religious belief persists in our time mainly because of bad parenting (i.e., parents teaching their children religion), and if only we could rid ourselves of this irrational belief in the supernatural, the world would quickly enjoy unprecedented peace and harmony.

The main problem with this whole line of thought is that it takes into account only a small part of the human psyche while denying and devaluing the rest.

This was already the response of the Romantic movement, which followed close on the heels of the Enlightenment and celebrated the emotions and fantasies that had been swept out of the tidy Neoclassical worldview of Locke and Smith. The Romantics restored “irrationality” to a place of value and usefulness, perhaps even giving it too high an estimation; these swings of the pendulum do tend to carry to extremes.

It’s a bit ironic that the rationalists of the Age of Reason looked to ancient philosophy for support for their arguments, because the ancients actually had a much more balanced view of human psychology. In particular, Plato and his followers clearly delineated the psyche into an irrational and a rational part, and though they did argue that the rational soul should rule the individual psyche, they contended that the psyche as a whole should aim to serve a higher, super-rational level of being. (To be technical, this “higher level” is called nous in Greek and is translated generally as “spirit” or “intellect,” depending on the inclinations of the translator; neither term really works very well, in my opinion.)

There are many, I’m sure, who will find it absurd to accord any value to irrationality. But consider: Are our sense-perceptions rational? Of course not; they simply report the facts of our environment to our emotions and our thinking. What about instincts? No, but they're pretty useful in keeping us from starving to death and so on.

What about emotions? Well, as Carl Jung pointed out, there is in fact a kind of emotional logic, which is why he defined "feeling" as a "rational function": We can rate and rank and judge things according to how they make us feel, good or bad, better or worse. And that kind of evaluation seems pretty important to our well-being. But in our modern worldview, dominated by the belief that “rationality” consists entirely of verbal or numerical logic, it doesn’t make the cut.

And let’s not forget the importance of irrationality in creativity, in making breakthroughs. Logical analysis just breaks things down or connects one existing thing to another; it doesn’t produce anything new.

However, ignoring or denying the existence or importance of these things doesn’t make them go away; instead, it simply sweeps them under the mental rug, into the unconscious – something else a lot of contemporary thinkers like to pretend is nonexistent. And from their lurking-place in our mental shadow, they can feed on our basic appetites and drives, and grow large and powerful enough to dominate us now and then, causing all sorts of embarrassing problems and bloody conflicts.

In addition, there’s a tendency toward the thoroughly unproven and frankly rather smug belief that “we” – that is, the intellectual inheritors of the Western (specifically, the Northwestern European) worldview – are the only really rational people, while “they” – all those mostly darker people in the rest of the world – are irrational (“medieval,” “emotionally volatile,” “politically immature,” etc. etc.) and therefore in need of our benevolent (of course) guidance (or the firm hand of a dictator chosen by us).

It scarcely needs to be said, but I’ll state that I don’t think “we” are as rational as some of us like to believe, nor are “they” as irrational. And in any case, I think we need to practice irrationality to some extent. You might say that the problem isn’t that we’re irrational, it’s that we just aren’t very good at it.