Intelligence is not rationality and there is a continuum for both - Thinking beyond behavioral biases

If there is a continuum of intelligence, there can also be a continuum of rationality or sensitivity to behavior biases. Some investors are more intelligent than others and some are more rational than others. This dual framework assumes that intelligence is not the same as rationality. In the vernacular, the smart guy may lack common sense. So, you want to find the investment manager that is both intelligent and rational. (See Smart does not mean rational - Need to think beyond SAT)

That some investors are more intelligent than others is accepted as an established fact. There is no big deal here.  We have a battery of tests that rank people based on their smarts. Less smart people should not run money and the market is driven by those that are smart. 

The same idea of a continuum should be said for rationality. Some investors are more rational than others. The fact that behavioral bias tests show that some people, perhaps a lot, show biases should not be surprising. There is a continuum with some being more rational than others. 

If we can train to increase intelligence, we can do the same for rationality. Similarly, if we can choose on intelligence, we can also choose on rationality.

If we tested portfolio managers for intelligence, we will find a spectrum. It is likely, or we hope, that the dispersion of that spectrum will be tighter and higher than the general public. If we ran a battery of tests on rationality to find the degree of behavioral biases across managers, we should find similar results. 

Similar to intelligence tests, there is a minimum standard necessary for success with respect to rationality. You do not have to be super rational. You can have biases. You just have to have a minimum level of rationality to be functioning within the investment world. If you have more than the minimum you should do better, but the number who are significantly better will be limited. 

The combination of intelligence and rationality is what makes a truly successful portfolio manager, but we don't know the right mix between these two factors or how the two may trade-off. I may be highly intelligent, but rationally deficient, yet function well. For example, I make behavior mistakes and I am aware of these shortcomings, so my intelligence tells me to develop rules and maintain a minimum level of diversification. Alternatively, I may not be as smart as many other managers, but I could be very rational and avoid mistakes. I don't have to be a genius if I am disciplined and minimize the behavior mistakes. 

In the current world, do you need more intelligence or rationality. Right now, I would put more weight on the rationalist who is aware of and combats behavioral biases. This is not a time for deep thinking although it will be needed as we move beyond the current initial chaos. The importance is on not making mistakes, avoiding biases, and reacting in a disciplined manner consistent with the information.