Counterfactual Reasoning and rationality

So during class the other day we got into a brief discussion about whether humans are truly "rational" beings. This question came out of the discussion of counterfactual reasoning, the idea that we can rationalize events mainly in two categories, "it could have been worse" or "if only...". It seems that we often reason against facts in order to fit the way we want the world to be. Is this necessarily "irrational", though? Although our memory system is not perfect, it wouldn't make evolutionary sense for it to be. A perfect memory system would be quite resource intensive, and we'd also likely run in to problems with our retrieval system having difficulty finding relevant information. Our system does an excellent job of recalling important information. We can recall information important to survival and information that is important from an evolutionary standpoint.

I wonder, however, if memory for social activities is selected for as strongly as memory for things necessary for survival. Although there is social interaction among our evolutionary ancestors, it seems as though it becomes much more important for humans because of language development. We can interact in social situations in ways that other species cannot do. But since language is a comparatively new development in the evolutionary sense, is our memory as well suited for language memory as it is for other things? Our memories can sometimes cause problems in social interactions. We sometimes place a high standard on others to remember things about us and about our lives. But our memory system isn't perfect. We might not be able to remember things about someone's children or something else in his or her life. Although we do fairly well with social interaction, our imperfect memory system can cause problems.