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Getting Out of H.A.R.M.'s Way: Rationalization & False Reasoning - Part 4

Little white lies are told by humans all the time. Indeed, lying is often how we get through each day in a happy little bubble. We spend time and energy rationalizing our own behaviors, beliefs and decision-making processes.

~ Barry Ritholtz

We are moving forward in our series of Getting Out of H.A.R.M.’s Way. I hope, by now, you are mainly starting to focus on the aim of our topics. That is, becoming more self-aware of the ways in which inconspicuous, normal human hindrances manifest themselves as H.A.R.M. in your financial life. Rationalization is the third impediment to be wary of


We started off the HARM series speaking about the necessity of facing issues and fixing issues. Rationalization can be an obstacle that prevents both. Rationalization is a normal tendency of human nature. It functions as a method of self-protection that allows us to maintain a familiar sense of self. It would be difficult for our egos to remain intact if we frequently disagreed with our own thoughts and behavior. Rationalization is the way that our minds need to justify a decision or reason that we believe or behave a certain way.

The familiar tale of The Fox and the Grapes from Aesop’s Fables illustrates this. After several unsuccessful leaps attempting to reach the high hanging grapes, the hungry fox, frustrated and exhausted from his failed efforts, finally gives up. Instead of admitting his failure, he convinces himself that the grapes were sour and that really didn’t want them anyway.

Rationalizing is simply backward thinking. We act on the basis of habits, emotions, or impulses, and need to come up with some rationale to justify or support our actions.

We are really not as aware as we think of the reasoning behind some of the choices we make. The field of behavioral economics is responsible for the discovery explaining this reasoning. Nonetheless, our minds will search for support to reinforce our actions and provide a plausible explanation for our thinking. It’s not uncommon to find ourselves rationalizing about our financial issues. Many of the choices we make in life have financial consequences. A preponderance of the decisions we make on a daily basis have an impact on our lives, wallets, or bank accounts. We don’t actually deliberate on these decisions from a perspective of dollars and cents because our minds don’t function this way when determining most of our choices.

We are primarily motivated by our wants, needs, and self-gratifying desires. Variations in our emotions, circumstances, and such things as self-control account for our actions. Driven by habits and impulses to satisfy urges and desires, our minds are simply reactive and do not necessarily use deliberative thought to determine the economic impacts of our decisions.

What’s behind the need to rationalize? Well, have you ever felt that it’s a struggle to make a choice because you have incompatible desires? It’s as if you have two minds and are challenged with choosing sides. There’s a good reason for this. The mind actually has two mental systems that work independently of each other. Take, for instance, needing a new car. You arrive at the dealership with a set price point in mind, but when you get on the lot, you’re enticed by the many options and features of vehicles that exceed your predetermined budget. Your attraction to these options shifts your feelings about what you really need and “obviously deserve”. These bells and whistles were never on your radar nor were they important to you. In fact, cars with more modest features would certainly exceed your needs. For a fleeting moment, you recall that you haven’t even begun to set aside money towards your 11-year-old's college fund, although you’ve been saying for years that you need to start. You hadn’t really thought out how you planned to make that happen, but you conclude that you still have time to address it later. With a little mental gymnastics, you realize that if you cut back on some indulgences and add in the expected raise you are likely to get in 2 months you could get by with spending an extra $201 per month for your new vehicle. At this moment while at the dealership, what is your likely choice?

Research in behavioral economics indicates that there is a likelihood that the urge to satisfy your impulse will overpower the more strategic thoughts that align with your more valued priorities and goals regarding educational savings. You may later regret your decision and wonder what made you choose the way you chose. The fact is, while making your decision, you likely did not meaningfully deliberate over the impact on your budget, it’s alignment with your values, or why this choice was grounds for a budget cut but the education fund was not. You possibly didn’t give a second thought about how this unplanned budget increase would impact long-term plans or your child’s educational options in 7 years. Without really thinking, it was easy to rationalize the multitude of reasons you should have this car.

Even if you had pondered the decision for a week before making the purchase, recognize that you may not really have been deliberating over the increased monthly payments nor future college expenses. Subconsciously, you’d have made up your mind about what you were going to do. You’d be elated about it, and your emotionally charged mind, during that entire week, would only accept support and rationales that reinforce why you should have what you want and have it now.

Our desire to alleviate cognitive dissonance is one reason we rationalize. We experience cognitive dissonance when we try to resolve discomfort between two incompatible ideas. In order to reduce our discomfort about two competing beliefs, we often rationalize the discomfort away. In our fable, the fox was experiencing cognitive dissonance when trying to resolve the discomfort between desire and frustration. To resolve his mental tension, his mind manufactured an explanation to convince himself that the grapes were not desirable. Thus, he appeased himself and was absolved of his frustration through his own self-deception.

This behavior plays out in our own economic lives. Buyer’s remorse is one example. We are not consciously aware of the fact that we feel conflicted. To rid ourselves of the mental discomfort, we naturally alter our thoughts or alter our behavior. It is easier in the moment to feel better by altering our thoughts. Suppose you just bought a jacket that was not in your budget. You already have enough clothes, and if you take it back now, you could use the refund to pay on your credit card bill. The path of least resistance is rationalizing away the uneasy thoughts. For example, you may thing, “I’ll just keep it. It’s too much of a hassle to go back to the store, and it was discounted for 30% off. Plus, it goes so well with the jeans I bought last month.”

This person ridded themselves of their uncomfortable thoughts by rationalizing that they made a wise purchase. It excuses them and makes it acceptable to persist in behaviors of overspending, debt accumulation, and undisciplined choices. On the other hand, behavioral change would be enacted if the person acknowledged the fact that the purchase was not appropriate in their situation and honored their truth by returning the jacket and using the refund in alignment with their true intentions.

Although rationalizing is normal, we need to be conscious of the tendency to do so and recognize the extent to which we do this and in what areas of our lives. The nuances of economic behavior make us susceptible to adverse consequences if we are not intentional in examining how we are make choices and how those choices impact our lives. Having planned intentions that are relevant to our values, goals, and priorities is a means for establishing parameters and guidelines that minimize many of the proclivities of human nature that contribute to adverse economic choices. The processes used to engage in proper life planning through proper financial planning and analysis serve to help us gain clarity in his area.


Think of an economic mistake you might have made in the past that had an adverse effect on your economic circumstances. Don’t just think in terms of purchases. It can be any decision that had financial implications. Are you able to think back and identify your thought processes in making that decision? Do you recognize any ways in which you rationalized in order to sway your decision toward what you wanted at the time? In hindsight, are you able to identify any issues that you should have taken into consideration that would have led you to make a more effective or wiser choice? In reflecting on this, can you determine if you have a pattern of rationalizing your decisions the same way you did in the issue you just recalled?

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