If the bank offers you a secured amortised loan at 1.7% flat per year for 25 years and the government is giving 4% risk-free return compounded yearly as an investment. Would you take it?

You pay about $0.42 in interest per dollar borrowed for the entire 25 years. Whereas after 25 years, every dollar invested gets you $1.71 on top of your investment. Profit of $1.29 per dollar after 25 years. Sounds good?

Yet I have mortgage clients opting out similarly structured deals, with the following reasons;

1. They would like to reduce their monthly commitment
2. They dislike debt fundamentally
3. They do not like to pay interest

Mind you, this is not a loan to pamper yourself on material goods or holidays. It is to leverage on your assets to build up your finances and legacy.

And yet, humans are perfectly rational in my opinion. I can fathom why they make such decisions here.

1. They do not have enough information or capacity for higher level logic processes. (It is like a different language. If you cannot read it, you are somewhat lost in translation)
2. They have already made a decision based on their emotions, and they feel perfectly justified in their thinking (Emotions are deeply entrenched behavioural patterns based off “Fast Thinking” read Daniel Kahneman)

Both of these points can be summarised as instant gratification.

Regardless of what is logical; the utterly universal and yet uncommonly recognised purpose to make oneself ultimately happy, that drive being the key biochemical momentum in decision making, makes humans understandably rational in their pursuit of happiness. This should be my summary for every irrationality I encounter.