April 3, 2017

Rationality and Randomness

When you look up at the sky in the night, you see constellations. Constellations are human inventions, an attempt to ascribe pattern to a random gathering of stars. Why do we do that?

The human brain is tuned to find patterns, it is not tuned to understand the concept of randomness. When you find something which is completely random, you still try to find patterns therein. This is because randomness as a concept is extremely hard to grasp. How can you describe randomness? There is absolutely no model through which you might be able to understand randomness. It is therefore impossible to understand.

Randomness is a part of all of our lives. On a certain day you leave at 8:30 and get to the office at 9:00, while on another you get there at 9:20. Let us say on your first day to work, you left at 8:30 and reached at 10:30 because there happened to be an random accident that happened to block off the road. You would certainly leave early the next day, but it may not be needed.

Which brings us to rationality.

Human are supposed to be rational creatures. We look at all of the information that is available to us and make a rational decision based on the information that is available. At least, in theory that is how we are supposed to be. Having said that almost none of our actions are truly rational.

The stock market is described as a place where all publicly available information about a company is assimilated to give the stock a value, in theory. And, what drives the market – Sentiment!

Rationality is about being able to follow a pattern, model or a rule. A rational decision by design can be deconstructed and the reasoning is apparent. 

Millennia of practice has taught us that the rationality and randomness do not work well together.

One of the experiment often cited is – would you take $50 today or take $100 in 5 months. Often taking the $100 is shown as a sign of patience and rationality; but life is full of random nonsense. What if this person who was offering you the money, got angry with you? Or if they decided not to give after 5 months? Or they died? So, now what would a rational person do?

For all that we may claim to be rational, we are conditioned to think and do things based on past experience rather than pure rationale. 

The randomness of life makes the irrationality of our behaviours just. 

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