We are all mostly Irrational!

When is $11 bigger than $10,000?

When is $11 bigger than $10,000? (Photo credit: Canadian Pacific)

Irrationality is something that completely amazed me soon after I attended TEDxHRC this afternoon. I spent a few hours thinking about it and I simply couldn’t stop myself from writing this blog after that. I am sure you will like what you read ahead.

To begin with, irrationality is a human behavior that can only be supported with false or no reasoning at all. Economists believe that all humans are completely rational but I strongly disagree. There are instances from everyday happenings, things that we see around which will clearly show how irrational human beings are. What’s more surprising is that you and I can actually see this irrationality but still fail to act differently. The human mind is at fault, which leaves much scope for evolution.I have been talking a lot because I have a context to refer to. I am going to provide you guys with a similar context before I continue to comment any further on irrationality of human mind. Following are some examples which exemplify irrationality seen in humans:

1) Do you guys follow economist.com? Well, that really doesn’t matter as long as you follow me (:p). Economist is a weekly news publication that comes in both print and web. Now recently it posted its subscription rates that I have attached below.

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Photo Courtesy : http://www.balancedworklife.com/

Immediately you notice that Print subscription and Print & Web subscription both come for the same price. Weird, isn’t it? Forget that for a while and tell me if you were given an option to choose from these subscriptions which one would you choose?

So I am guessing you chose print and web subscription at the price of US$ 125. If you didn’t, you are a part of a group that represents only 16% of the population. That’s completely all right. I am sure no one chose only Print Subscription at US$ 125. That makes sense because you are being offered more at the same price in the next subscription pack. All of you might think that you are acting completely rationally but that really isn’t the case. Now imagine if we excluded the second subscription pack that no one chose.

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What would you choose now? You may be persistent with your original choice because you are scared of admitting your irrationality but when the same test was done with a mass group of people the results were astonishing. Earlier when only 16% of the people chose the first subscription pack was now converted to 68%. That’s a massive increase of 325%. This is exactly what I wanted to show. Why does the human mind tend to act so irrationally in such a situation? I really don’t know what exactly happens in our mind when we see evaluate such a thing. Maybe we feel that we are outsmarting the Economists guys by choosing a pack which is giving us more at the same price or maybe somthing else. The fact remains that the Economist guys are able to pull out more money from our pockets by using a simple technique. Consider another example below.

2) So I came across this picture while I was aimlessly browsing the internet. Lets use this as the second experiment. Can you all tell me if the lines you see below are slightly tilted or not in the following picture.

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I suppose you are going to say that the lines are straight but that is just because you know that this is an optical illusion. If you had no idea about what optical illusions were you would have instantly said that the lines are tilted. This is yet another case of irrationality. While you may think that you have made the best possible decision you actually can’t even justify it. Suppose you said the lines indeed are tilted. Would you have been able to reason such a claim? Obviously not because they aren’t tilted.

3) The last one is what I picked up from Mr. Suman Srivastava (Marketing Unplugged) during the TEDx event. Consider the following two offers you find in your local supermarkets.

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Which one would you choose out of these? Your rationality must have taken a boost by now so you know both the offers are exactly the same. But the truth is that most humans would choose the first offer. I am not concerned with the reason to why we choose and do such a thing. All I want to do is to show how irrational we act at times. The bigger picture here is that everytime we do something, we are convinced that we are being rational. It’s only after looking beyond the things we see that the irrational component is revealed.

So this is exactly what I wanted to point out. Humans and their minds act irrationally so many times that it is actually really irrational to assume that humans act rationally all the times. This means that most of the economists are acting irrational when they build economic theories based on such assumptions.

If all humans were really rational then marketing would have ceased to exist. This is because no one can make a product more sellable without changing its specifications if all humans were rational. It’s actually really simple to understand but really difficult to digest.

Hence rationality looks only good on paper. In real sense it doesn’t exist and never will. Also, our irrationality will be exploited indefinitely by businesses around the world and we cannot do anything about it. Now the question that arises is as to why do we act irrationally. Answering this question will require us to take a dip in the ocean of behavioral economics. I’ll do that when I get some time off my CA prep. Until then why don’t you give it a shot.

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4 thoughts on “We are all mostly Irrational!

  1. Really interesting and so true. We are not the rational actors traditional economics assumes. Behavioural economics is the way forward.

    • Hanish says:

      It in fact is, partially because to understand consumerism we need to first get our basics right. Till the point we continue presuming humans to be rational decision makers our theories are not going to be valid.

  2. […] We are all mostly Irrational! (ecodig.wordpress.com) […]

  3. […] We are all mostly Irrational! (ecodig.wordpress.com) […]

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