"The Science of Irrationality: Why We Humans Behave So Strangely

MIT's Dan Ariely discusses his research in behavioral economics and explains how to deal with our brain's flawed decision-making process" - Scientific American.

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"All your bias are belong to us." Ara Pacis
"A witty saying proves nothing." Voltaire

We do need to take into account "irrational" behaviour. Though often such behaviour becomes at least explicable on closer examination.

My father once recommended a certain financial strategy for a relative, which involved locking up savings while this person still had debt. I argued that a higher return was almost certainly to be obtained by paying off debt first, (a) because lenders expect to make a profit on lending you money and (b) because income from savings is taxed (or else you pay fees for a tax shelter, which tends to work out much the same).

My father pointed out that the relative had the "irrational" behaviour mode of "spend all free cash", and therefore my proposal was not actually the best for this relative, who would at some time need enough money to retire on. I had to agree with him.