Eden Chen

Humans Are Irrational

Eden Chen January 14, 2019

We are all irrational. This is backed by decades and decades of research that shows the extent of our irrationality. I’d like to highlight three sources, and then talk through some takeaways.

First, I recently read Nobel prize winner Daniel Kahneman’s book Thinking Fast and Slow which talks about there being two systems of behavior of thinking in our minds. System 1 is our automatic, fast, impulsive, lazy thinking. System 2 is our conscious, intentional, analytical thinking.

For example, try the problem: A baseball bat and a ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?

Let me give you a clue, the answer isn’t $0.10.

Our brains are lazy and they tend to default to system 1 which is often incorrect and probably why most people first get the problem above wrong. We think it’s an easy problem and so we default to system 1. This is one of many many examples Kahneman goes through in his book.

Second, in 1977 Ellen Langer, conducted a study that looked at the power of the word “because”. In the experiment there were 3 scenarios where someone cut people in line at a copy machine and said:

  1. I have 5 copies, can I use the xerox machine? (Request) – 60% of people let them skip the line
  2. I have 5 copies, can I use the xerox machine because I’m in a rush (request with a good reason) – 94% of people let them skip the line
  3. I have 5 copies, can I use the xerox machine because I need to make some copies (request with no good reason) – 93% of people let them skip the line

Finally, as someone who’s been trading stocks now for 10 years, and having lost and made too much on trades to put in this document, the number one thing I tell myself when I’m trading is not to let my emotions dictate my trades. I set a rule for myself and it takes everything in my will to make sure that I enforce this. My instinct is often the wrong one.

What do these sources tell us about ourselves? There’s a lot here but I’ll focus on three that are related.

We need to be mindful in our thinking. It’s easy for us to default to a response because it’s our instinct. The millennial generation has been told that we are special and that we can do anything. This has often led us to believe that we are in our nature infallible whether it be our instincts or our desires. Marketing firms know this to be a paradigm and therefore they often just try to repeat the same message over and over because if it’s repeated enough times then we’ll believe it. Geico will save us money (Geico – no matter how many ads you run, State Farm still gave me a lower quote). In the experiments above, we find that our default thinking is often wrong (system 1), we often say yes to things for no other reason than because someone said “because”, and we often lose a lot of money because we are more afraid of losing money than making money. I’m reminded of a passage in 1 Corinthians 2:14 that says “the natural person does not accept the things of the Spirit of God, for they are folly to him, and he is not able to understand them because they are spiritually discerned.” The Bible also breaks out two persons throughout human history, “For the desires of the flesh are against the Spirit, and the desires of the Spirit are against the flesh, for these are opposed to each other, to keep you from doing the things you want to do.” -Galatians 5:17

We are blind to our own blindness. In all 3 sources, we often don’t even realize what we’ve done. In order to be mindful in our thinking we have to start with the realization that we’re blind.

It is easier to recognize other people’s mistakes than our own. We need friends that challenge our thinking. This is one of Kahneman’s recurring themes, we need trusting relationships in order to protect ourselves against our biases, mistakes, and prejudices.

God is Good,

Eden

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