All humans are a little bit insane; we’re not as rational as we think

You are an irrational person. Yes, you.

That’s not an insult. If you can read this, you’re a human being — and that makes you irrational. In fact, I believe — in all seriousness — that every human being is just a little bit insane. Some form of insanity is a universal “birth defect” among us.

One of the biggest mistakes we make in life is assuming we’re rational. What’s worse, we notice that other people seem irrational and stupid, but almost all of us believe we’re the exception. My way of looking at the world is right and rational. Your way is wrong and irrational. (You probably have evil motives, too.)

You are the hero of your own story. In your own mind, you believe you’re making rational and smart and sane decisions. You believe you have good motives, at least within the context of however you’ve justified your own actions.

I do exactly the same thing. And our mutual blindness about this whole charade leaves us with warped perceptions of the world around us — and of each other.

I’ve been thinking about this tonight because of a conversation I had with a wealthy friend. He’s been listening to various opinions about economics and money management lately, because he’s trying to figure out how to protect himself from a crash he believes is going to happen soon.

He’s trying to rationally predict when the current bubble will pop — so he can get his money out of the market just in time.

He was watching a documentary which was advocating stronger political control of markets and the economy — on the grounds that humans aren’t as rational as economists believe. He wanted my opinion of the ideas being presented.

I told him that anybody who thinks humans are rational is fooling himself. Of course, we’re not. Economic models which assume that humans are going to act in their own rational self-interest are completely bonkers. But people who want to “fix” this problem are completely blind to something else.

They are irrational human beings, too.

Trusting politicians and regulatory bureaucrats is a perfect example of being irrational, but it’s an irrational belief which is shared by so many people that it’s considered normal. We write books and teach children about a system of benevolent politicians making good decisions for us all, even though all the evidence shows this isn’t true. Even though it’s clear for everyone to see, people keep believing in this irrational thing they’ve been taught.

The people who make documentaries and write books telling us how to fix everything have the idea that other people are irrational — but that they have things figured out. (Convenient, I’d say.) They also completely ignore the fact that politicians and others who would operate such controls as they advocate are also irrational people.

The irrational reformers seem to ignore this.

They are making a rational case for assuming that they can appoint rational people to make rational decisions for us — when one of the central points is that we are all irrational.

They are contradicting themselves.

I’ve slowly come to believe that it’s impossible to model exactly what’s going to happen next. Humans are unpredictable and always will be.

But there’s always a politician who tells you that he can predict everything and fix everything. There’s always a central bank regulator waiting to tell you why his previous actions were rational when he made them. And there’s always a stockbroker waiting to tell you which stocks and securities you should buy or sell — because they get paid either way, even if the markets are crashing.

The fact that people are irrational is the best argument I know for letting people make their own decisions. If we admit that humans are irrational, it’s downright arrogant to pretend that certain people (who are also irrational by definition) can put their own biases aside and “do the right thing.”

And that’s ignoring the central fact that if I want to be irrational with my money and my life, why should some other group of (also irrational) people get to tell me what I should do, in their eyes? It’s a nutty contradiction, but I can’t get a lot of people to see it.

This made my friend question the very things he had done to become wealthy, which actually made me happy. He has assumed that he made rational market decisions when he built his little fortune, so he thought that the steps he took are the best ones for other people to take in order to get wealthy, too. He’s preached his methods to me before.

As the light was dawning for him — that his timing was good and fortunate — I pointed out that identical actions with different timing could have left him with nothing.

The fallacy that many of us make is to assume that if something we’ve done works for us, it must be “the right thing” for everyone else to do, regardless of the conditions or timing. I understand why people assume that, but it’s not rational. It ignores most variables.

But success makes us feel smart and rational. Our way must be The Right Way.

As long as you know the financial choices you make are a gamble, you can justify some gambles. But it’s best to understand that there was chance involved, too, even if you get rich. For context, some people have won huge amounts of money from lotteries, but that doesn’t mean spending money on a lottery is rational behavior.

Our decisions can be rational to a degree, but they are always made in the context of the assumptions we make. If our assumptions are wrong, our predictions might be useless. And many times, we are blind to what our assumptions are, because we’re so accustomed to “the way things are now” that we often have trouble imagining anything else.

And then something completely different happens — and it changes everything. We have absolutely no way of knowing when change is coming. We have no way of knowing which of our assumptions are wrong. We are making guesses, which we hope are educated — about money and the rest of life, too — and we’re hoping we’re less blind than other people are.

This is why I think you learn far more from your failures than from your successes. If you do something and it works, you think you’re a genius and everybody else ought to simply emulate you. But when you fail at something — as I did with a newspaper company years ago — you’re forced to see all the things you didn’t know. And you see all the things you couldn’t possibly control.

If you had asked me when I started that company, I would have told you that I couldn’t fail. I knew what I was doing and I could publish an excellent newspaper. What I didn’t know is that my father would pull out of the investment prematurely — because he had been caught embezzling from his employer — and I also didn’t know what mistakes I would make regarding sales and hiring.

If I had succeeded — for whatever reason — I would have thought I was a genius who could do no wrong and that other people should have emulated me. Because I failed, I learned a lot and I learned how little control I actually had over the results.

Failure is a harsh teacher, but success simply tends to create unwarranted confidence in your infallibility. Failure teaches some humility. And I needed some of that back then.

Whatever you’re doing in your life right now, I can guarantee you’re being irrational about a lot of it. The same is true for me. But since we’re all irrational — and a little crazy — to one extent or another, you and I are probably blind to most of the stupid decisions we’re making.

The ironic thing is that I can see your mistakes better than you can — and you can probably see my mistakes better than I can. But each of us is so self-centered and arrogant that we can rarely even hear what others might need to tell us that could save us.

There’s a maze of irrational thinking and irrational beliefs in your head. Those irrational things sit side-by-side in your mind with the thoughts and beliefs which are perfectly rational and reasonable. But they look the same to you. We often can’t tell the difference.

I’d be lying if I told you there’s a good solution for any of this. The best thing we can do is to be as rational as we know how to be, watch for our own blind spots (that we know about), and trust ourselves as much as we can. It’s also useful to have someone who sees through you, too, because we all need someone who can tell us the truth in love when we’re making dumb decisions.

Not a single one of us will ever act completely in rational self-interest. Even if we try, we don’t really understand what’s best for us, because we can’t know the future and we can’t understand all the variables involved.

But even if you know all of this — as I do — you’re still going to keep making mistakes. Pretty much every day, I look at other people and think how stupid and irrational they are.

I can’t get completely over the delusion that I’m the rational one — and that you are the one who’s irrational. I’m still working on it.