Rational versus Reasonable

A good friend gave me a book called Dictionary of Fine Distinctions for my birthday. I love it. He and I both value good grammar. There’s a two-word pejorative term for us, but I know if I type out those two words this post will never make it past compliance.

There are a lot of takeaways in the book but the two pages differentiating rational and reasonable got me thinking.* Let me quote from the book because the author does a great job articulating the difference.

To be rational is to be logical. To be reasonable is to be sensible.

One is about thinking carefully in the abstract. The other is about being fair or balanced in real life.

Rationality lets us pursue a single train of thought–sometimes to the point of tunnel vision.
Reasonableness exposes our myopia to a broader, if blurrier view.

Should personal finance be looked at from a rational perspective or a reasonable one?

Personal finance is – to the best of my knowledge – a social science. Homo economicus, the portrayal of humans as agents who are consistently rational and narrowly self-interested, is fiction. Humans aren’t rational. The study of behavioural finance makes that clear. But can we label different parts of personal finance as either rational or reasonable?

Rational works with investment portfolios and insurance needs. Math, probability, and logic lead to expected risk and returns, and a rational investment framework should produce better results than an emotional or intuitive one. Appropriate insurance needs can also be calculated. But the decision to buy (and how much it costs) needs reasonableness.

Reasonable works everywhere else. Figuring out your retirement date involves more than numbers. Knowing your risk tolerance keeps you from losing sleep. And no rational model accounts for supporting aging parents, helping your kids, or planning for death or divorce.

Don’t address reasonable problems rationally, and don’t address rational problems reasonably.

*From pages 94 and 95 of this edition.