Posted by Tim Stobbs on September 28, 2011
In personal finance circles there is a bit of natural bias to making decisions based on rational thought and careful analysis (you have noticed a LOT of spreadsheets and charts, right?). Granted a lot of people also temper those decisions with some emotional input. Yet we tend to ignore the fact we also make complete irrational choices almost purely on emotion.
To explain this further may introduce the newest member of my family, a little dog called Bing, she came to live with our family because of a completely irrational decision by my wife a few weeks ago. I’m not blaming my wife for this choice, but merely telling the tale of how this all went down.
First a little history on the situation, Bing had previously been owned by my parents. Yet after a few years of my own father being retired they realized they had a major issue with their dog. Their lifestyle was no longer compatible with owning a dog. They travelled much more and also spent longer periods of time away from home during the day which they thought was unfair to the dog since she was used to having someone around for most of the day. So after a couple of years trying to make it work, they decided to put the dog up for adoption, but prior to doing that they approach their kids to determine if any of us had any interest.
My wife and I aren’t dog people. Typically we don’t like most of them as we find a lot of them horribly trained or they bark too much. Yet we had often commented in the past they we make an exception for Bing. As this particular dog (not its breed) suits us just fine as she only barks when someone comes to the door and is extremely good with kids (which is critical when your wife runs a daycare). So we had some interest and discussed the decision for a bit.
On the logical side a dog isn’t the best choice for us as we tend to travel a fair bit ourselves and with the daycare the dog might be an issue for some parents. Yet in this particular case the reality was my wife was going to be spending the majority of the time with the dog and I wasn’t. So I turned the decision over to my wife and said I could live with or without the dog.
Since we now have the dog for a few weeks, you know what she choose, but what was really interesting to me was when I asked her: why? The answer “It just feels right.” So this choice was done purely on emotion and completely irrational. Yet is that wrong?
I personally think was all make irrational choices a lot more than we give ourselves credit for. For example, how did you determine what you wanted for supper last night? Did you look at your previous eating habits and determine the choice based on a cost and nutritional analysis? I don’t think so, you likely went with “I feel like eating X” and then did so. So irrational choices happen more often than we like to think about and frankly that is completely fine in many cases.
Where irrational decisions do get you into trouble is investing, buying a house or a car. What’s the difference? The impact of the decision and the cost. High impact and/or high cost decisions shouldn’t be irrational, but low impact or low costs can be. In regards to our dog, I would say the impact was low and the costs will towards a moderate amount because they will be ongoing for a number of years.
So what was your last irrational choice? Or what do you do in the case of moderate impacts or costs and irrational decisions?