“This GameStop frenzy is irrational, it doesn’t make any sense”
As the year got even stranger, thousands of Redditors were raising the price of a “beaten-down” company called GameStop. In the process, hedge funds were hemorrhaging billions of dollars as they had shorted GameStop.
But this isn’t about understanding what happened with GameStop, it is an exploration of the complicated concept of irrationality.
I ran a few Twitter polls on irrationality. 80% of the people believed humans are irrational, yet in stark contradiction 70% believed another person’s irrationality is our lack of understanding them.
What is irrationality?
“It is more specifically described as an action or opinion given through inadequate use of reason, or through emotional distress or cognitive deficiency,” says Wikipedia.
A few years ago, I would have accepted this readily. Today, I question the concept of reason. “Logic” and “reason”, barring physical sciences and mathematics, are far more fluid than I initially realized.
10 years ago, a CEO of a public company sharing memes would have been deemed irrational. Today, thousands want even more of it.
How did a CEO sharing memes become “rational”? Perhaps, our understanding of irrationality is flawed in the first place.
While people are mostly predictably “rational”, it’s the perception of rationality that is limited. Our concept of rationality is based on our thoughts, experiences, feelings, upbringing, priorities, and understanding of the events.
We are faced with bounded cognitive abilities when it comes to decision making. From the outside may seem irrational to another.
In reality, it is just that their “rationality” is different from yours – just as their reality is different from yours. Most of us fail to acknowledge and understand the forces that drive others’ behaviour.
I’d go as far as saying that nobody is irrational.
Saying a person is “irrational” is a placeholder for our lazy thinking and lack of understanding. We must not confuse “irrationality” with “poor” decision making. A bad outcome of someone’s choices is only visible after the bad outcome happens.
Nobody makes choices to feel miserable after that.
When a person makes a decision, the decision is perfectly consistent with the person’s internal frameworks. These frameworks have constraints, models, and goals.
These decisions begin to seem “irrational” when these constraints, models, or goals are not understood. Or worse, they are socially unacceptable.
After all, logic and reason in human behaviour are simply what is generally accepted at the time.
Travelling for hours to meet a person for business meetings was “rational” just a year ago. Today, that same behaviour is “irrational”. A year later, we may have two sets of people, split by who “believes” in-person meetings.
Which brings me to now applying this thought process to startups, and in general, life.
The greatest changes happen by people who go against the general consensus. They question the present “status quo” or what is deemed “rational”
In essence, those who push the envelope are by definition “irrational”.
There is a thin line between crazy and genius, and only time tells which side you will end up on. But the necessity is that you have to be doing something widely accepted as “irrational” to create an impact.
Leaders of great movements were initially deemed “irrational”. Similarly, innovators building great products were initially deemed “irrational”.
Big changes happen when something “irrational” becomes “rational”. The ones earlier deemed “irrational” suddenly become pioneers.
If 30 years ago, someone told you that you’d be doing most of your shopping online without actually touching and feeling the product, you might call that person irrational.
Now, can you imagine going out to buy a couple of things and not calling it on Amazon?
In the recent letter to his employees, outgoing Amazon CEO Jeff Bezos wrote, “We’ve done some crazy things together, and then made them normal. If you get it right, a few years after the surprising invention, the new things become normal. People yawn. And that yawn is the greatest compliment an inventor can receive.”
When will you embrace what people call irrationality?