Tweet

When Is It Rational To Be Irrational

Written by: Guy Kingston

Article Overview: The expression “irrational exuberance” has taken on a new significance in recent days. It was used in a 1996 lecture by the then Chairman of the Federal Reserve, Alan Greenspan, and was widely interpreted as a diplomatic hint that he considered the markets overvalued.

When Is It Rational To Be Irrational

The expression “irrational exuberance” has taken on a new significance in recent days. It was used in a 1996 lecture by the then Chairman of the Federal Reserve, Alan Greenspan, and was widely interpreted as a diplomatic hint that he considered the markets overvalued.

The hint was not diplomatic enough to prevent falls in the markets at the time – or perhaps that was the plan – but they were small falls by the standards of 2007-09, and the irrational exuberance soon returned. The opportunity for a less irrational revaluation was lost and the day of reckoning was postponed. It was therefore far more catastrophic when it finally arrived.

Yet Mr Greenspan probably got the expression from a surprising source – one who used it in a very different context.

The economist John Maynard Keynes spoke of an “irrational exuberance” that is necessary for success.

There are indeed many cases of entrepreneurs who were too young and inexperienced to know that something could not be done – so they just went out and did it!

Indeed, the defining feature of the successful entrepreneur is a willingness to do what no one else does – perhaps because everyone else assumed it was impossible.

So “irrational exuberance” has both negative and positive meanings. The same is true of youth in an entrepreneur.

Youth is by definition inexperienced, and therefore relatively ignorant – and therefore also irrational.

However, youth is also energetic, self-confident, willing to take risks, unbound by convention, and devoid of the caution that comes only with bad experiences over the years. These are the factors which make up the exuberance that enables the young entrepreneur to charge in to places where battle-scarred veterans fear to tread – sometimes successfully but often not.

To seek a happy medium which has the exuberance without the irrationality is to miss the point, which is that the irrationality is a necessary part of the exuberance.

The great historical example of this is a man who retained much of the exuberance of youth throughout his long life, Winston Churchill.

Had Churchill made a “rational” decision in 1940, he would have calculated that there was no way that Britain alone could beat the rest of Europe, then united under Nazi rule – he had no right to assume that Hitler would be so insane as to declare war on both Russia and the United States.

Still the irrational exuberant Churchill fought on, and so saved Western civilisation.

Faith is defined as the “assurance of what is unseen”, and every new enterprise is a leap of faith. We cannot yet see the successful business we want but we are confident enough that we will see it to take the risk.

That leap of faith is greater for some businesses that for others: those great leaps often lead to the greatest successes – but also, it must be said, to the greatest failures.

Irrational exuberance has been at the root of Mankind’s most disastrous errors, from the Tower of Babel, through the Charge of the Light Brigade and Custer’s Last Stand, to the over-heated markets that doomed themselves to a spectacular crash.

Yet the same irrational exuberance is a necessary part of all human progress – including all successful new and expanding enterprises.

After the mini-slump triggered by Greenspan’s remark, bumper stickers were produced reading, “I want to be irrationally exuberant again.”

Perhaps there is a gap in the market for such stickers again.

After all, such irrational exuberance will be necessary to get us out of this recession.

So if you have it, and combine it with a business idea in which you have faith, do not let anyone – least of all two middle-aged men who secretly wish they had more of it themselves – talk you out of it.

Related Articles
  Face to Face With Fear
  ENJOY THE RIDE
  Resistance to change: inexplicable, irrational, and real
  WHY WE DO NOT ACHIEVE OUR GOALS
  Decisions Are Never Emotional

Article Tags: alan greenspan, caution, chairman of the federal reserve, day of reckoning, economist john maynard, experiences, expression, federal reserve, happy medium, irrational exuberance, irrationality, john maynard keynes, mr greenspan, revaluation, source one, successful entrepreneur, willingness, young entrepreneur



Related Forum Posts
Re: Books for the Entrepreneur - I like "A Whole New Mind" by Daniel Pink, and "Predictably Irrational: The Hidden Forces that Shape our Decisions" by Dan Ariely.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Listen to Your Inner Melody

Gas bills go up by 18% can we take any more

Are You An Accidental Consultant?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.