• Eve Arnold

Understanding Your “Inner Rational Agent” Sharpens Self-Awareness

Are we ever rational? Often we make decisions at odds with our goals. We tell ourselves our goals over and over yet when crunch time comes; we make the ‘wrong’ decision time and time again.

“Good resolutions are useless attempts to interfere with scientific laws. Their origin is pure vanity. Their result is absolutely nil.” — Oscar Wilde, The Picture of Dorian Gray

Research conducted in 2002, by Dan Ariely, describes this very phenomenon. He talks of dieters choosing not to have a crème brûlée prior to going to a restaurant (remember those?). The mental account happens hours before the decision is to be formally made, the decision-maker presumably tallies up the total calories in said dessert and decides not to indulge herself.

Yet, as Ariely writes, and as you well know, when it comes time to formally make the decision, at the point the decision-maker is asked for her dessert order, can you guess what happens? She decides to indulge herself.

“One crème brûlée please.”

Only to find that moments later, after that last spoonful entered her lips, she is filled with regret. This is quite the confounding result but it’s one we all know too well. Why do we make decisions that our later selves disagree with?

Are We, Or Were We Ever, Rational?

Standard economics depicts that people, us, make rational decisions. What is a rational decision? Well, simply put, it’s one that makes sense, founded by logic and reason. In our example above, the rational decision would be to avoid said crème brûlée. The dieter has committed to her diet; she knows that crème brûlée is high in calories, therefore if she is indeed a dieter, she would avoid crème brûlée. Eating a high-calorie dessert and being on a dieter is paradoxical.

Behaviour Economist Gerardo Infante wrote in his 2015 paper:

“Neoclassical economics assumes that individuals have stable and context-independent preferences, and uses preference satisfaction as a normative criterion.”

In other words, we know what our preferences are, we use them and we do so consistently. You might read that sentence and laugh aloud. If you know anything about humans or yourself, you know that will never be the case. As in the example above and countless examples in your own life. If only life was that simple.

If life were indeed that simple, you would find that when you commit to waking up at 5:30 am every morning you would do so with ease; when you decide to go to a home workout 4 days a week, you’d never miss a single session; and it would certainly be the case that when you commit to your diet, you would never secretly snack on a Snickers bar when no one is watching.

Dan Ariely, a Behavioural Economist and the author of the brilliant ‘Predictably Irrational’ takes this idea that we are all rational and turns it on its head. Instead of believing we all, as Economics would suggest, are completely in tune with our preferences and know exactly what we want, Ariely argues that we are both predictable and irrational.

“Since my early days as a patient in the burn department, I have been acutely aware that humans engage in actions and make decisions that are often divorced from rationality, and sometimes very far from ideal.”

The obvious question is why but first we need proof that we do indeed, make decisions at odds with our preferences.

The Case for the Outer Psychological Shell

In their ground-breaking book, Nudge, Cass Sunstein and Richard Thaler argue that unlike the arguments of Economists and similar to that described by Ariely, we are humans. We often make decisions that do not benefit us in the long run because right now, it feels good.

“Worldwide, there are some 1 billion overweight adults, 300 million of who are obese…There is overwhelming evidence that obesity increases risks of heart disease and diabetes, frequently leading to premature death.”

Instead, it seems that us humans make decisions based on psychological factors rather than those that are in line with our goals. There have been many studies that have demonstrated this well, but few as well as a study conducted by Kahneman, Thaler and Knetsch in 1990.

The experiment was to understand the valuation given to a coffee mug by various students. In one condition students were asked to consider the amount of money (in ranges) offered to them and then say whether they would choose to have the money or the mug. In the second condition, the participants were first given the mug and then asked whether they would consider selling the mug back to the experimenter at different ranges of prices. In the selling treatment (condition 2) the median valuation was $7.12, in the ‘choose’ treatment, the median valuation was $3.12. Same mug, same ranges of money. Completely different results.

As Infante puts it:

“It would be very difficult to argue that the difference between being told that you have been given a coffee mug and being told that you can choose to be given one is a good reason for a 2-fold difference in your valuation of the mug.”

Whilst it’s hard to conclude which of the valuations are irrational, it is easy to suggest that the difference is completely unfounded. What was it that caused the difference? Well, that is known as the endowment effect. Endowing someone with something, in this case, the coffee mug, makes the value of that thing go up. Ownership seems to influence people’s relationship with an item. It now makes sense why sofa companies insist you try the sofa on for size first and then, if you’re not happy, they’ll come and pick said sofa up for free.

But Yet We Are Not Completely Irrational Are We?

But being completely irrational human beings would make little sense. It would mean we would continuously make decisions contradicting reason and logic. Now, you only have to look at life around you to know that isn’t true. Whilst we might make silly decisions on a daily basis that are not in complete accordance with logic and reason, a sneaky chocolate bar here and there, we do not dismiss logic and reason altogether.

For instance, a dismal of logic and reason would mean we make totally ludicrous decisions. Deciding to eat a crème brûlée looks like child’s play compared to what the complete dismal of logic would look like. The actual irrational behaviour would be ordering the whole dessert menu and eating until you were sick. You see, one little crème brûlée is nothing.

Infante suggests the best way to think of humans and their decision making is this:

“A rational inner agent, trapped inside and constrained by an outer psychological shell.”

Your inner rational agent can be described as that who knows you are on a diet and correlates the word diet with the overindulgence of the crème brûlée. Placing the two side by side, your inner rational agent decides that the most rational choice, given your current dieting-stance, is that you should not eat said crème brûlée. In fact, you should avoid desserts altogether and make a decision on your main course based on your current calorie intake. If the intake was high for the day, a salad is the best choice for main. Whilst your psychological outer shell is something to be aware of, simply knowing your inner rational agent exists provides comfort and self-awareness.

Yet, that’s not the end of the story. Simply knowing you have the capability of being rational is comforting but not extensive enough. Equally, knowing you are subject to a matrix of emotions again is great to know but doesn’t necessarily help with making decisions. So what is left to do? Well, Nassim Taleb said it wonderfully when he said:

“…after spending all my adult life and professional years in a fierce fight between my brain and my emotions in which the only success I’ve had is going around my emotions rather than rationalising them.”

In Summary – Our Inner Rational Agent

It’s clear that us humans are quite the complex creatures. Having the ability to think, reason, rationalise emotions, to be self-aware enough to realise we are rationalising our emotions is a bit of a brain fart in itself.

The emerging field of Behavioural Science suggests that our decision making is often at odds with our goals. In other words, we say one thing and do another. This is a concept all too familiar to us, yet we scratch our heads when we think objectively about it. It makes no sense. Why would we choose to make decisions that are at odds with our goals?

Kahneman and others have described this as irrationality and Ariely took it one step further describing it as irrationality that is predictable. However, Infante’s summary might provide us with a better description:

“That we have an inner rational agent but an outer psychological shell.”

Either way, it does mean that understanding this is the first step in understanding yourself and your decisions. Having the depth of thought to realise you might be at odds with your own self is quite confusing but not incomprehensible. Simply knowing this is enough to at least sharpen your self-awareness.

0 views0 comments