I went to business school in the late 1970s, when professors assumed people were rational economic creatures. We seek to maximize the benefit of any transaction, from purchasing groceries (I’ll buy the larger size because it’s cheaper per ounce) to deciding whether to get married (Is he or she a “good catch?”). This leads to the efficient market theory, which claims that the price of everything — but particularly stocks, bonds and commodities — reflects all the things people can possibly know.

There was a study from UCLA in the 1980s showing that the price of orange juice futures was a more accurate predictor of the weather in Florida than the actual weather report. The people betting on the future orange crop, who put their money where their mouth was, did a better job sifting through all the information and making a prediction than the people who consulted their computers and weather maps and reported their conclusions to the weather bureau.

So the orange juice trade suggests an efficient market. But then, how do you explain the Nasdaq bubble of the late 1990s, or the housing bubble of the mid-2000s? Or, perhaps, the stock or bond bubble of today?

Now that I’m older and have some worldly experience, I realize that while the economic assumption of efficient markets is appealing, it is also naive and simplistic. People are not always rational; they believe in lots of crazy things. They base decisions on emotions rather than facts. They select the information they want to believe based on their own prejudices and personal experiences. They follow the herd. They do what they want, and find the reasons for it later.

Yale University economist Robert Shiller explained the irrationality of bubbles by likening them to a Ponzi scheme. The people who get in early in a bubble typically identify a legitimate economic situation, and they make a lot of money as other people recognize the opportunity and bid up prices. Eventually prices outrun the original economic thesis. But prices keep going up because investors see prices rising and assume they will just keep on growing. Investors continue to jump in. Finally, people realize that the new economics don’t support the new prices. The bubble bursts and prices plunge, until all but the original investors who got in at a low price lose their money. These bubble prices are not efficient. They are illusory.

People have limited ability to obtain information and figure out what it means. So instead they act on their emotions or their gut feelings. Their behavior is influenced by cultural issues, or their own self-worth. How else to explain why people pay an exorbitant price for a car, or a collectible, just to prove they can afford it? That’s not rational — that’s egotistic. Or what about people’s lack of self-control, when they order a third martini even though they know they shouldn’t, or buy yet another pair of shoes when they have no use for them?

There’s a lot of wishful thinking out there, a lot of paranoia, a lot of emotion. And just so you know, I am not immune. I also let my emotions overrule my rationality. For example, I know that traveling in an airplane is the safest form of transportation, and that you’re more likely to die in the car on the way to the airport than you are in the airplane on the way to London. Nevertheless, you won’t find me on an airplane anytime soon. Or if you do, I’ll be full of mood-altering drugs, because I’m reluctant to jet 30,000 feet up in the air, locked in an aluminum can serviced by a disgruntled maintenance crew, flown by an underpaid pilot and directed by air traffic controllers who are sawing wood in the control tower.

I know. That’s not rational. But that’s how I feel.

There is one exception to my rule. It involves the game of golf. I’m a mediocre golfer and a lousy putter. I’ve been through at least a dozen putters in my day, and each time I’ve been certain that the new putter would be the secret that transforms my game. Each time I’ve been wrong. But last weekend, I saw a new putter at the golf outlet. And I’m sure this time it’s different. I tried it out. The putter has a great feel to it. And it cost $170, which is twice as much as I’ve ever spent on a putter. If it’s that expensive, it’s got to work. Don’t you think?

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Why We Make Irrational Decisions in Investing and Beyond originally appeared on usnews.com