Long Read  

Is the financial services industry entirely rational?

It seems, so continues the Berlin-based psychologist, that our brains build visions of the world based on our own perceptions and often immutable but false convictions. 

This is so even when the facts quite obviously reveal, or at least suggest, a different story. Everyone, even with the best of intentions, operates to some extent "divorced from reality".

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Perhaps we need this mechanism to survive in certain contexts and situations, but the results can still be disastrous.

Sterzer was motivated to write this book to investigate how exactly these convictions develop in our heads. 

What selective and aberrant processes lead us to deal so badly with climate change, pandemics, religiously motivated (and other) wars, or the economy?

It is not possible to explain the neurological processes in this article; suffice it to say they take many forms and exert a very substantial impact on human behaviour. 

Does rationality triumph? 

The global, local and personal challenges of our times all require balanced, objective and clinically rational decisions that are in the best interest of all involved. 

Yet, all too often, the diametrical opposite prevails. In the worst cases, major (and minor) decisions are made by people who are arguably acting neither rationally nor objectively.

From the investor in the street, to the bank manager and right up to government economic advisers and presidents, there are those who are just not psychologically able to perform effectively and optimally.

The book contains many compelling cases and examples. Let us look at just two, one of which is general and the other which relates to money. 

At the Berlin Charité hospital where Sterzer is a professor, an old man was recently treated for being convinced he was under observation by the East German state police, the Stasi.

He was sure they had installed a device in his flat that could read his brain waves, and thus went around in an aluminium helmet intended to prevent electronic access to his head.  

When Sterzer pointed out that the Stasi had been out of existence for more than 30 years, the old man laughed and said “you just have no idea”.

While this is an extreme and hopefully rare case of clinging to a notion that has nothing whatsoever to do with reality, less extreme but more damaging cases are rampant out there. 

Where, when and how many is difficult to determine, but various shades of irrationality have a lot to do with the economic, financial and countless other problems of this world.  

And it can work the other way around as well. One must be careful accusing people of being mad, as such claims can themselves lead to appalling mistakes and injustices.