02 Mar 2009
Listener Sophie Marston asks for advice about the best courses to take at university
for an aspiring entrepreneur.
Guy Kingston and John Richards respond with their usual independent, original insightful
ideas and perhaps surprising.
What should would-be business owners study? Should they study at all? Is there any
Does a university education offer benefits beyond direct course content?
Also, other listeners have challenged us on past shows. We give their concerns an
airing, and respond accordingly.
When It Is Rational To Be Irrational
The expression “irrational
exuberance” has taken on a new significance in recent days. It was used
in a 1996 lecture by the then Chairman of the Federal Reserve,
Alan Greenspan, and was widely interpreted as a diplomatic hint that he considered
the markets overvalued.
The hint was not diplomatic enough to prevent falls in the markets at the time –
or perhaps that was the plan – but they were small falls by the standards of 2007-09,
and the irrational exuberance soon returned. The opportunity for a less irrational
revaluation was lost and the day of reckoning was postponed. It was therefore far
more catastrophic when it finally arrived.
Yet Mr Greenspan probably got the expression from a surprising source – one who
used it in a very different context.
The economist John Maynard Keynes spoke of an “irrational exuberance” that is necessary
There are indeed many cases of entrepreneurs who were too young and inexperienced
to know that something could not be done – so they just went out and did it!
Indeed, the defining feature of the successful entrepreneur is a willingness to
do what no one else does – perhaps because everyone else assumed it was impossible.
So “irrational exuberance” has both negative and positive meanings. The same is
true of youth in an entrepreneur.
Youth is by definition inexperienced, and therefore relatively ignorant – and therefore
However, youth is also energetic, self-confident, willing to take risks, unbound
by convention, and devoid of the caution that comes only with bad experiences over
the years. These are the factors which make up the exuberance that enables the young
entrepreneur to charge in to places where battle-scarred veterans fear to tread
– sometimes successfully but often not.
To seek a happy medium which has the exuberance without the irrationality is to
miss the point, which is that the irrationality is a necessary part of the exuberance.
The great historical example of this is a man who retained much of the exuberance
of youth throughout his long life, Winston Churchill.
Had Churchill made a “rational” decision in 1940, he would have calculated that
there was no way that Britain alone could beat the rest of Europe, then united under
Nazi rule – he had no right to assume that Hitler would be so insane as to declare
war on both Russia and the United States.
Still the irrational exuberant Churchill fought on, and so saved Western civilisation.
Faith is defined as the “assurance of what is unseen”, and every new enterprise
is a leap of faith. We cannot yet see the successful business we want but we are
confident enough that we will see it to take the risk.
That leap of faith is greater for some businesses that for others: those great leaps
often lead to the greatest successes – but also, it must be said, to the greatest
Irrational exuberance has been at the root of Mankind’s most disastrous errors,
from the Tower
of Babel, through the
Charge of the Light Brigade and Custer’s Last Stand, to the over-heated markets
that doomed themselves to a spectacular crash.
Yet the same irrational exuberance is a necessary part of all human progress – including
all successful new and expanding enterprises.
After the mini-slump triggered by Greenspan’s remark, bumper stickers were produced
reading, “I want to be irrationally exuberant again.”
Perhaps there is a gap in the market for such stickers again.
After all, such irrational exuberance will be necessary to get us out of this recession.
So if you have it, and combine it with a business idea in which you have faith,
do not let anyone – least of all two middle-aged men who secretly wish they had
more of it themselves – talk you out of it.
© Agincourt Productions