Before we proceed any further, firstly, the definition of rationality must be defined to get rid of all the ambiguity. Rationality, in a nutshell, is all about sensible and justifiable decision. For example, jumping off a burning building is rational if there is a trampoline awaiting you on the ground, but it is not rational to jump off the building because you think you can fly. Of course, rationality is quite susceptible to subjectivity. It is mostly based on personal preference and reason. Being logical is the complete opposite. Buying a Lamborghini because you think it is edible might be irrational to the others, but to you, it is rational. Still, no matter how you look at it, from whichever corner you view it, whoever views it (you or your parent or your dog or complete strangers) it does not change the fact that it is clearly an illogical decision. So logic is a more rigorous and objective reasoning process.
Individual rationality is basically a sensible decision/judgement/behaviour/action for a person. Collective irrationality is pretty much a collectively unsound or unreasonable decision/judgement/behaviour/action. So what I am trying to achieve here is to explain to you how individual rationality can lead to collective irrationality. In other words, concurrent/similar decisions or actions by the majority can be irrational and lead to adverse results at a macro level.
If you and all your friends suddenly decide to drive to school at the same time, well, to each of you, it is a good decision. It will be safer, and probably, you can find a girlfriend faster than those who ride a bike (like me). However, the problem is that this decision has led to traffic congestion at the school entrance, not to mention the small parking lot that has the capacity of only 5 cars. So it will probably cause lots of inconvenience for you, your friends, teachers, especially the principal (just as planned).
Likewise, what happened in the medieval warfare, some scenarios might be no different. Soldiers' morale weakened, and they deserted their base. Of course, when a soldier decided to run for his life, the others might find it irrational to stay any longer risking their life in the process. In the end, they followed each other's "rational" decision, and ultimately, the war was lost even if there was this possibility that they could have won had they hold on to their base, defending it while waiting for reinforcement. And who knows? If the enemy pursued them, with scattered force like that, their chance of survival would be much lower. This is really what we call "worse comes to worst".
A more relevant example to what happened recently is food price inflation in Cambodia. Since everyone felt insecure due to the political turmoil, the unstable condition of the country, people started stocking up their food supply, buying every single piece of meat they can find on the shelves. The result? Food price spiked. We all made a rational decision by securing food supply for the need of our own family, but at the same time, as the fear pervaded the country, the aggregate demand for food rose high, and food price soared. So we were in fact worsening the situation, creating more fear, increasing the food price, making it more scarce, and killing ourselves and everyone else (especially, the poor who is most vulnerable to the increase in food price) in the long run.
Rationality, just as mentioned in my first article, is one of the core assumption of economics. Of course, people don't always make rational decision, but highly educated people mostly do as education turns people into a more rational being who relies more on thought and reason to reach a certain decision. Since those people are the one with the most impact on the economy, rationality can be scary, especially when we deal with individual rationality which can transform into collective irrationality.
So the moral of the story is that there has to be someone who can oversee the whole process. Someone who recognizes the defect and makes rules and regulations to control and intervene with any form of rationality deemed harmful for the whole society/economy. This is why we have leader, ruler, king, government...etc. And this is why free market can lead to market failure as free market allows free movement with little or no restriction. So just so you know, free market is never the best option. In this world, the ideal free market does not exist. Absolutely, purely free market does not and should not exist. We do not have anything on the extreme, but only things in moderation.
This is still a controversial public discussion among scholars and policy makers as to how much of the free market should be allowed. Regardless, too much is never good. Moderation is almost always better.
In conclusion, rationality should never be considered as evil, but the lack of understanding of its nature and the ignorance of its harmful effect in the absence of regulation are what we all should be afraid of. That is why we should at least be aware of its inherent characteristics, so we can make a better decision for our long-term well-being.
This is an important topic connecting to free market, market failure and policy making, about which I will write later. Enjoy learning.
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