Are Human Beings Rational? Let's explore.

Humans are wonderful creatures, and according to traditional economics, they are rational, logical, make the right decisions at all times and we can reason brilliantly.

Everything in the above sentence is a lie, except, that humans are wonderful. But they are surprisingly irrational and illogical. Humans respond to the environment they are in and have several biases at any given point. We are not great at making decisions, in fact, many times our decisions are governed by the choices we are presented with.

If you do not agree with this, here are some facts which will make you think;

  1. On experimenting with fake painkillers, the one that cost $2.50 seemed to provide faster relief to people as opposed to the painkiller priced at $0.10. Even though, both the pain killers were absolutely fake.

  2. Coca-Cola has been a great brand. But why do we pay $0.50 for a can of Coca-Cola and $2.59 for a same-sized Red bull?

  3. Music influences our purchase decision. The days when French music is played, shops witness more sales of french wine and on days where German music is played, German wine outsold the French wine.

Let's experiment

To understand this better, here is an exercise; Name the colours of the words below? Do it quickly and try not to pause as you read them out loud.

Remember, the task was to name the colour and not read the word.

But it is highly likely that you found it difficult to read. Now, we do know how to read, we do know what colours are, still, it is difficult. Why?

The Reason

The reason because unlike what traditional economists feel, humans are not rational, and more often than not, we act based upon our emotions and not based on logic and rationality.

Imagine when you are chased by a bear, I am sure you will start running first and not open your laptop and calculate the time, speed and distance of the approaching bear! Run!

Though in normal situations, bears might not chase us (unless you are in a jungle or have a pet bear) others things do chase us, like temptation, when we go on a diet and we see that amazingly soft, moist, jiggly cheesecake, we start to think - “Can I have a tiny little piece of it. But didn't I decide to go on a diet? Well, a little cheesecake will do no harm.”

What I am trying to say is we humans, use our emotional, automatic side of the brain almost instantaneously, while the cognitive side of our brain takes a back seat. And to understand humans, the way they are, we need to step outside traditional economics.

Now behavioural economics, just like traditional economics, has the same intentions i.e, the intentions of understanding people - understanding how they take decisions, what motivates them, what makes them react and so on and so forth. But the difference lies at the starting point. Behavioural economics understands that the people are not rational and so it tries to understand their irrationality by allowing them to be in a situation and see their response. Which may or may not be rational.

Now, the next time you visit a store with an intention to buy that specific red sweater, but instead come out with two different orange and yellow sweaters, because they were on a buy one get one sale, think... Why? Didn't you want just one red sweater?

Written by Reetika Swaroop Srivastava