Inside The Irrational Mind

Richard Thaler recently won the Nobel Prize in economics. It’s well deserved for Thaler has uncovered the ways we are systematically irrational. This results in only a tiny percentage of the population being “economically rational people.” But why so few?

Thaler is a professor at the University of Chicago’s business school. The Nobel committee cited “his contributions to behavioral economics.” This school of thought is upending the standard economics assumption that people are rational, utility-maximizing creatures. Thaler believes only a tiny percentage of the population (what he calls “econs”) fit this description (maybe one percent). The rest of us are economically irrational (what Thaler calls “humans”).

Behavioral economics informed Thaler’s best-selling book “Nudge,” co-authored with Harvard law professor Cass Sunstein. The authors advocated for government nudging good behavior rather than coercing it. In his 2015 book “Misbehaving,” Thaler tries to help people save for retirement. “Humans” don’t think into the future, so Thaler urges companies to change retirement plans from an opt-in design to an opt-out. One company did and the number of employees who were enrolled jumped 71 percent.

In 2004 Thaler and Shlomo Benartzi, a UCLA economist, helped a midsize manufacturing firm almost quadruple the saving rate of company participants after four annual raises. Called “Save More Tomorrow,” the idea was that when workers get a raise, their employers, with the earlier consent of employees, would automatically increase the percentage of their gross pay directed into their 401(k) accounts. Thaler believes “econs” were probably already doing that, but most “humans” weren’t.

These are important findings, but as David Brooks wrote, behavioral economists are only scratching the surface of our irrationality. Neuroscience might go deeper. For instance, Thaler says “econs”—the one percent—see the big picture while “humans” are “myopic,” narrowly focused. Why only one percent?

The answer lies inside the Western mind. In his book, The Master and His Emissary: The Divided Brain and the Making of the Western World, Iain McGilchrist says the Western world has become left-brained. It’s the result of the overly confident left hemisphere shutting out the right, making us economically irrational people.

Here’s how it works. The right hemisphere is “broadly vigilant” writes McGilchrist. It sees the big picture and imagines the future. The right has an intuitive sense of numbers and what they mean in the larger context, like retirement. The left is “narrowly focused.” It sees particulars and the present. But it has difficulty with numbers except in the simplest sense. And, left to itself, the left brain doesn’t reciprocate with the right. The result is the Western world has become left-brained, narrowly focused.

If you doubt this, ask yourself why 90 percent of the Western world’s population is right-handed. The brain is contralateral (the left hemisphere controls the right side of the body and vice versa), so right-handed people favor the left hemisphere. But why isn’t 50 percent of the population left-handed? Or, to go a step further, why isn’t everyone ambidextrous? And why have the ten percent of the Western world’s left-handed population often been coerced to operate out of their left hemisphere?

It’s true. According to neuroimaging, 70 percent of left-handed people have their language mediated by the left hemisphere (the right should be doing it). The other 30 percent can either mediate language with both hemispheres or mediate language with the right hemisphere (as it should be). This is partly the result of left-brained educators who, until recently, forced school-age left-handers to write right-handed (operating out of the left hemisphere). There are additional reasons, of course, but the fact that few left-handed Western people operate out of their right hemisphere is evidence of a Western society prejudiced toward the left.[1]

This prejudice yields a system where few people are ambidextrous—only one percent of Western world’s population. They fit Thaler’s description of “economically rational people” using both hemispheres. The rest of us are irrational, products of a system that’s left-brained, narrowly focusing finances on immediate individual returns and largely ignoring the big picture as well as the future.

[1] Kenneth M. Heilman, Creativity and the Brain (New York: Psychology Press, 2005), pp. 73-74.