Strategy. Innovation. Brand.

behavioral influences

When Irrational Behavior Is Rational

We can teach you international finance.

We can teach you international finance.

Not long ago, I drove to my doctor’s office for a 10:00 AM appointment. To get there, I drove past the University of Denver and a local elementary school.

The university students were ambling off to their ten o’clock classes. They ambled randomly, crossing the street from different locations and at different angles. Rather then using the cross walks, they often stepped out from behind parked cars. I couldn’t guess where or when they might emerge from hiding and step directly into the path of my car.

The elementary students were also on a break but they were formed up in neat lines. The younger ones held hands in well-organized two-by-two columns. Teachers were in control and the kids only moved when directed by adults. Then they moved only in predictable fashion in predictable directions.

I thought, “Huh … the school kids are much better behaved than the college kids. The college kids should behave like the school kids, not the other way round. The college kids may be learning advanced, abstract concepts but they need to get back to the basics.”

A few days later, I had another think and asked a different question: Which set of kids induced better, safer behavior in me? Clearly, it was the college kids.

Here’s how it works. When I drove past the elementary school, I was aware that school was in session. I drove slowly and paid close attention to my surroundings. At the same time, however, it was clear that the kids were well behaved and under control. I could predict their behavior and I predicted that they would behave safely. I was aware of the situation but not overly concerned.

With the college students, on the other hand, I had no idea what they would do. They were behaving irrationally. Anything could happen. By the elementary school, I was aware. By the university, I was hyper-aware. I drove even more cautiously by the university than by the elementary school.

The college kids influenced my behavior by acting irrationally. As it happens, that’s a key element of game theory – as formulated by John Nash, the brilliant mathematician who was also haunted by mental illness (and who died recently in a traffic accident).

In game theory, if you don’t know what your opponent will do, you may circumscribe your own behavior. I didn’t know what the college students would do, so I drove extra carefully. I ruled out options that I might have considered if the college students were behaving more rationally and predictably.

In other words, acting irrationally is often a perfectly rational thing to do. I’m sure the college students didn’t consciously choose to act irrationally. But a crafty actor might well behave irrationally on purpose to limit her opponent’s options.

In fact, I think this school example perfectly explains the behavior of the finance ministers in the current Greek financial crisis. More on that tomorrow.

My Social Media

YouTube Twitter Facebook LinkedIn

Newsletter Signup