What Does Rational Mean?

We are often counselled to be a rational person when investing or planning. Evidence based investing is a wonderful idea. The problem is not many people know what you mean when you ask them to use reason and logic and evidence to reach decisions.

Should we care about rational even though it is hard and often overwhelmed by feelings? Maybe it does not matter.  Maybe some deeper skill, near subconscious, intuition or the like, matters.

Is rationality a subject you could study at school? Is there a theory of rationality? Would the theoretical approach provide the same answers for each person or would there be personal modifications?

There is no global theory of rationality and it is possible there need not be one. There may some day be one developed for artificial intelligence and robots, but for now we rely on our knowledge and experience to point towards what works for us.  Each individually.

Suppose I compare rational investing to golf. In golf scoring is easy and no one asks how you got what you did. “They don’t ask how, they ask how many.” Should investing be similar?  Only outcomes matter?

Probably not.

There is a reason for the difference.  In golf, you can play again another day.  Life is not so easy. In life there is no stroke and distance penalty. Sometimes, you reach retirement with no money or you die with no estate.  No do over. No, “I’ll do better tomorrow.”

So where is the middle ground that lets us achieve the goals we want without a theory of rational?

It is understanding that outcomes happen because of the consequences of decisions. Consequences are measurable as you go. Outcomes do not appear until the end.  Learn to record your purpose and your plan.  Then record the results of those decisions.  Compare to expectations and adjust as required.

It is a little like driving your car. For amusement sometime, ask someone to count how many times you adjust the steering wheel in a minute on a straight road. You will be surprised.

Life requires continuous adjustment. Most of life is just common sense and simple rules. Maybe that is what rational means. Minor adjustments keep you in your own lane and out of the ditch.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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