Book Synopsis: The Upside of Irrationality, and How we are victims of ‘My Ideas are better than Yours’

Another weekend another book. This time it was about irrationality and actually how it helps being irrational – The Upside of Irrationality! We are an irrational species, and that was amply demonstrated through a set of experiments that the author conducted over time.

the-upside-of-irrationalityOne of our irrationalities has to do with lack of acceptance of new ideas because “it is not made here”. Even when we know that it is rational to choose something that is better even if not made here, the irrational part of us often says – not good as it is not made here or it is not mine! There is a set of experiments that the author describes to demonstrate that – but that is besides the point. The point really is that most of us are victims of the “My ideas are better than Yours” syndrome.

That’s the reason a lot of us fall in love with the cars we buy, the houses we own and perhaps even the stocks we have – even though there might be better ones around! Well – I am not getting into whether that is good or bad, because like so many other things, it depends! But it is quite true that better ideas, products or offerings that come from outside our own definition or context of our set up are not easily accepted by us – very often till it is inevitable to accept them. And this applies, I think, not just to individuals, but to any groups of people where a sense of ownership is established – so it applies to families, communities, cities or countries on the one hand; and perhaps even to departments, functions, companies, business groups on the other. So Sony does not see that IPOD was a better idea than the CD Walkman – perhaps because it was not made here.  Or Microsoft does not see that Google was a great idea till it had to take notice. Our first reaction is – my idea is better than yours. It has its advantages and disadvantages – but the fact remains that in taking this position, we are not rational, mostly irrational.

The same applies sometimes to stocks, bonds, funds and all types of investments too. Often we fall in love with our investments – not because they are great investments, but because we made them. That is also, perhaps, one of the reasons most investors end up choosing their own stocks rather than invest via mutual funds or index funds. The irrational logic (if anything like that exists!) being –  my ideas of choosing a stock are better than yours. While most data suggests that majority of the people cannot beat the market, and the rational thing for most individual investors is to participate in equity through funds, so many people continue to buy their own stocks. That is also one of the reasons, perhaps, why we hold on to our losing investments, simply because we made them.

And finally, on a lighter note, that is, perhaps, also the reason why you may not agree with me on the point of this article. Many of you may tend to think – well this does not apply to me. Because it is not your idea that we are all victims of the “My Ideas are better than Yours” syndrome!


The psychology of happiness: Why money has little to do with it

It is unusual for a large global investment bank to present research on the psychology of happiness as part of their Global Equity Research. But that is exactly what I found in this attached document from Dresdner Kleinwort Wasserstein.

If you are looking for investment related advice, read no further. Also, if you invest in the hope of being financially well-off – so that you will be happy one day – you perhaps will learn from a reading of this piece of rational financial philosophy. Because according to them (and well – no surprise perhaps for a lot of Indians or followers of Eastern Life Philosophy), Money is not the source of happiness – beyond the point of lifting you out of poverty and giving you the basic means of a decent life.

MoneyHappinessAnd the source of happiness (or as they say – the contributors of happiness) revolve around three factors. First – your genetic make-up which you inherit from your parents or family is a 50% contributor to your happiness. Some people are just genetically pre-disposed to being happier than others. Second – your life circumstances – things like demographics, marital status, income, health, religious affiliations – are only a 10% contributor to your happiness. And Thirdly – the remaining 40% is determined by intentional activities that you do to increase your happiness by focusing on your happiness one day at a time.  These activities include 3 types: behavioural i.e. habits like exercising; cognitive i.e. mind-related like consciously focusing on living in the moment; and volitional i.e. discretionary activities like devoting yourself to serving a cause.  Basically – you make 40% your own happiness by doing activities that increase them!

So there it is – the writing on the wall – from people who advise other people on how to make more money – telling their clients that, after all, it won’t make them happy. Happy Reading!


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