There are a great many theories about life in the marketplace and one economist Tim Harford wrote in The Logic of Life – The Rational Economics of an Irrational World published by Bond Street Books, Toronto, 2008. Mr. Harford believes as you look at irrational world you can begin to undercover how they are making rational decisions. If they are making rational decisions and trying to understand how rational decisions are made, better decisions can be made or allocations of money.

There are many example in the book and one is about poker. The game of poker is considered to be irrational because much of the game is about bluffing. People play poker and some cards are on the table and some cards are in the hands of the players. How do players bet – do they bet more when they have a perfect hand? less than a perfect hand? or do they fold quicker? What is rational or what is irrational? John Von Neumann wrote a book in 1944 called Theory of Games and Economic Behavior. Game theory came into play and players begin to be more analytical towards how players in the past played. It was and is possible to bring a rational approach to the game and win.

Mr. Harford examines cities. Most of us live in some form of urban environment which leads to most of us have ideas of how cities work or do not work. There was a study in London, England done by Charles Booth of the rich and poor areas in 1899. (Google his name and London and you will see it) If you take the same map in 1999, with very exceptions, the poor areas are still poor areas. The rich areas are rich areas, even though the city is richer than before. In this fashion the safer and livelier neighborhoods remain so, while the dull neighborhoods remain dull. Mr. Harford sees this as perfect, rational sense.

How to change the maps? One solution tried was called Moving to Opportunity and that helped but it showed the neighborhood was not the only thing in life that can hold people back.

Discrimination is a reality and it hurts people in 2 ways, directly by denying people opportunities and indirectly by sapping the incentive they have to study hard and aim high. Education is the key, for it reality those with a higher education tend to make more money than those than do not. Who are the role models? who do the kids see? what do they read?

Linking to dividend paying stocks, how do you see the rational in the irrational. Sometimes you will know a stock is on the verge of moving up, but how do you do it regularly? What metrics do you use to help make decisions? When is a good time to sell or buy? You are looking for rational reasons, perhaps Mr. Harford’s book can help.

There are more questions than answers, till the next time – to raising questions.