Homo Economicus—Homo Irrationalis

On the fundamental irrationality of human behaviour

In an op-ed piece entitled "No Hurt Feelings in Germany" in today's New York Times (April 5, 2009), Christoph Peters writes:

Most of the people I’m in contact with, many of them intellectuals inclined to the humanities or the arts, can comprehend only gradually and hesitantly the extent to which the economies of the world have become one inextricable tangle, and we never cease to be amazed at the level of irrationality present in the reactions of the institutions and individuals that play a part in the economic process. In us, it elicits a shrug expressive of something between cluelessness and resignation.

In general, the politically minded members of my generation have world views shaped by the conflicting ideologies of the 20th century, even after the economic beginnings of those ideologies had coagulated into state doctrine and philosophical or socio-psychological theoretical constructs. The extremely mood-driven reactions on the international stock exchanges and in financial centers suggest that humanistic ethical criteria and rationally considered arguments alone will not suffice, in the present crisis, either to support individual opinions or to develop effective solutions.


I would just draw attention to the phrase "the level of irrationality present in the reactions of the institutions and individuals that play a part in the economic process," and to the statement that "humanistic ethical criteria and rationally considered arguments alone will not suffice …."

Here is further proof for the position that irrationality is a fundamental part of human nature and that rational solutions are limited in their effectiveness in dealing with something that is essentially irrational. The point of the title of this post is that human economic behaviour is fundamentally irrational, even though on the surface it wears a thin veneer of rationality. And because it is irrational, it is unpredictable and therefore difficult to control or be prepared for—like the weather. All complex systems, whether natural or artificial (i.e., made by humans) are, out of their sheer complexity, irrational. The economy (an artificial system) is a vastly complex system, with millions of interconnections that no one single mind (or even the collective minds of all the world's economists) can keep track of—as the current economic meltdown has shown. The brain (a natural system) is, similarly, vastly complex, and it likewise has millions of interconnections that the individual's consciousness cannot keep track of. The mind that results from such a brain often acts on its own, without the censoring benefit of consciousness and rational thought.

This point of this post is to show that irrationality is not just a characteristic of individual behaviour. Whole systems (such as the economy, or technology) can behave irrationally. One can cite the irrational behaviour of the tobacco industry or the petrochemical industry, both of which do willful harm—intentionally—to life and the planet for the sake of monetary gain (once again, the irrationality of economic behaviour!). One of the greatest problems facing the world today—even more serious than the economic crisis—is the problem of world hunger. This issue does not get much coverage in the media because it is not "sexy"—it does not "sell." But it is a desperately urgent problem, nevertheless. And it is irrational that it should be a problem at all. It is irrational that hundreds of thousands of Africans should starve to death, while tons of food left uneaten on American plates are dumped into the garbage every day. There is simply no good reason for this. The inequities of life are irrational, but sadly, they do exist, and they tell us that life itself is irrational in many ways.

Human problems of the sort that we are facing today—such as world hunger, war, human-induced climate change, and the economic crisis in particular (thrown into high relief now, in the wake of the just completed G-20 summit)—are such that a rational approach on its own is simply not adequate. I think the future of "thought" (i.e., the activity of thinking) lies in working out a system that blends rationality and irrationality in such a way that both are given their due weight. We need to work out a "theory of irrationality" that will serve as a basis for understanding and dealing with the irrational aspect of the human mind and human behaviour. For too long, philosophy has been one-sided in its emphasis on rational thought. Psychology and human experience have shown that rationality is only one part of the picture—perhaps even a very small part. While philosophy has tended to dismiss irrationality as an aberration and relegate it to nether regions of human activity, not worthy of attention, the human race can afford this luxury no longer.

The only rational thing to do is to give irrationality its due.

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