Success Secrets: Munger "Misjudgment" Single Post

Recently, I posted a series of posts related to Charlie Munger’s “Psychology of Human Misjudgment”. This post is intended to combine all the previous posts in one handy location.


Charlie Munger is well-known as vice-Chairman of Berkshire Hathaway , whose chairman is fellow billionaire Warren Buffett. In many speeches and writings, Munger has tried to elucidate the various mental “shortcut algorithms” we humans have evolved over the eons to make decisions quickly. Since we are living in a more complicated era than our primate ancestors, it is incumbent on us to be able to parse out when these vestigial processes are unduly influencing decisions that could be made more rationally.

We are indebted to Munger for his pursuit of these principles, because they frequently represent “blind spots” in our cognition. These “misjudgment tendencies” are so much a part of our nature that , without the checklist provided by Munger, we might never see them. Indeed I would be surprised if , even with years if self-examination, we could ever detect all of them in our own decision-making process.

Munger’s ideas on this subject have continued to deepen and broaden over the years. My goal is to create an accessible summary of these landmark ideas, but nothing substitutes for Munger’s own words. Please read the original. This summary is my attempt to compress the ideas into a shorter space, and to include an alternate descriptor for each tendency which might aid quick recall. Or, not. The most recent collection of Munger’s include 25 concepts. The list here is derived from that numbering.

1. Munger Descriptor: Reward and Punishment Superresponse Tendency
Alternate Descriptor: Each person responds most strongly to what they view as the strongest incentives and the strongest disincentives.

Expect that people will operate in their own self interest, including doctors, lawyers, brokers, your friends, relatives, employees and employers.

Structure incentives correctly, and you get great results. Structure them incorrectly, even by accident, and expect disaster.

Reflect constantly on the real incentives of any person you are dealing with. “What are they getting out of this?”

2. Munger Descriptor: Liking/loving Tendency
Alternate Descriptor: Humans have a natural tendency to like and love, and to want to be liked and loved.

This tendency can be used to mold behavior, good and bad. In other words, this tendency can be a driver of behavior. People will sacrifice their lives for what they love. They will adopt the habits, likes, and dislikes of those they love. And they will ignore the faults of those they love.

Implicit in Munger’s treatment is the concept that we should expect this tendency to override “rational” or other “expected” behavior.

3. Munger Descriptor: Disliking/Hating Tendency
Alternate descriptor: The tendency to dislike and hate can be used to mold behavior

Hatred can bond people as strongly as love.

Again, we should expect this tendency to override “rational” or other “expected” behavior.

Munger suggests the following “antidotes” as means for moving towards rational behavior:

Checklists
Deliberation
Seek disconfirming evidence (contrary to your “gut”)
Identification of self-interest with the best decisionmaking processes available
Liking/Admitting the most competent, ethical people
Keeping track of mistakes in judgment

4. Munger Descriptor: Doubt-Avoidance Tendency
Alternate Descriptor: Making decisions too quickly because of emotional, rather than rational reasons

Expect people to make hurried, possibly bad, decisions under stress. Attempt to avoid this tendency when making your own decisions.

5. Munger Descriptor: Inconsistency-Avoidence Tendency
Alternate Descriptor: We are habit-driven. We behave in a manner we deem consistent with our identity.

Expect people to be trapped in habits of thought for their lifetime. Expect people to ignore evidence when it is counter to their identity.

To adopt a new (good) habit, use the concept of consistency with the new identity to reinforce the habit. “Fake it until you make it”.

To avoid self-consistency bias, look for disconfirming evidence.

6. Munger Descriptor: Curiosity Tendency
Alternate Descriptor: Curiosity Tendency

Curiosity can aid the quest to reduce the other ‘human misjudgments”. Munger’s mention of the less-curious Romans (as opposed to the Greeks) is a reminder that we can gain much practical use from the curiosity of others that have gone before us.


7. Munger Descriptor: Kantian Fairness Tendency
Alternate descriptor: People in civil societies often behave as they would like others to behave toward them.

Munger notes that this behavior appears to have become much more common after Kant formulated his “Categorical Imperative” . The implication (to my mind) is that human reason can have a civilizing effect.

8. Munger Descriptor:Envy/Jealousy Tendency
Alternate Descriptor: Jealousy and envy are stronger in common practice than we allow ourselves to believe.

This is the “500 pound gorilla in the room” kind of trait that no one talks about, although, as Munger reminds us, it is screamingly apparent in families, universities, and all manner of professional firms. We ignore this trait at our peril.

9. Munger Descriptor: Reciprocation Tendency
Alternate descriptor: Tendency to reciprocate both favors and harm

Expect reciprocation for favors awarded and for perceived harm done. Feuds can be endless and last for generations. “Turning the other cheek” may be unnatural, and even dangerous, especially in advanced cultures that should want to protect themselves from aggression.

The tendency to reciprocate can be both positive (helping to deepen the bonds of productive relationships) or negative (as when we are led to grant favors that should not be granted, because we have been granted a favor).

10. Munger Descriptor: Influence-From-Mere-Association-Tendency
Alternate descriptor: The power of association encourages feeling over thought.

The power of association can influence behavior as when a product is promoted with a lifestyle, military service is promoted with impressive music, or when a product is “upscaled” (as in coffee with Starbucks). A second type of association occurs when we trick ourselves into repeating a behavior because it succeeded for us “the last time”. Thirdly, we may misjudge people’s abilities because we don’t alike a particular aspect of the person, and “tar” the entire person, or even a whole group of persons , “with the same brush”, although individuals vary widely from groups to which they may belong.

Munger explains to us that we human beings tend to use mental shortcuts that tempt us to avoid “drilling down” from the general to the particular. Another aspect is that our feelings are an older part of our brain anatomy, whereas our rational side is a newer evolutionary tool, that often gets downplayed because it doesn’t “feel” as “true”.

11. Munger Descriptor: Simple Pain-Avoiding Psychological Denial
Alternate Descriptor: Full or Partial Denial of Painful Facts

Expect extremely painful memories or unpleasant facts to be “re-configured” or denied. Expect that people simply find some facts (such as death, failure, chemical dependency) too painful to bear, so they act as if these unpleasant facts do not exist or deny the strength of those facts.

12. Munger Descriptor: Excessive Self-Regard Tendency
Alternate Descriptor: Overestimating one’s uniqueness in any area

We regard anything “like us”, or any decision we make, or anything we own, as “special” because it is something we personally have initiated, approved, etc. People we like, or people “like us”, are “better”, get the benefit of the doubt, etc. Munger always counsels us to search for “disconfirming evidence”. One interpretation: the stronger you “feel” it, the more you should check it before doing it.


13 Munger Descriptor: Overoptimism Tendency
Alternate Descriptor: Optimism without rational foundation

Expect failure if plans are not made rationally. Use mathematical probability techniques. Let the mathematics determine whether a business splan is “rosy”. Use the most pessimistic projections.


14. Munger Descriptor: Deprival Superreaction Tendency
Alternate Descriptor: Unusual sensitivity to real or perceived loss

Something perceived as “taken away” (money, power, perks, status, a comfortable situation) is perceived as a much more painful event than if the same status had never occurred.

This is a subtle and powerful observation and, as Munger says, much “ideological” , religious, and bureaucratic conflict may be traceable to this seldom remarked-upon tendency.

15. Munger Descriptor: Social-Proof Tendency
Alternate Descriptor: Irrationally following the example of others

Expect people to use this unfortunate decision-making shortcut. Conformity can lead to financial problems (“keeping up with the Jones’s”), or even international tragedy (when totalitarian and genocidal regimes slowly use social proof to co-opt a society). Munger tells us that the ability to ignore the urge to follow others, when they are wrong, is a key success factor.


16. Munger Descriptor: Contrast-Misreaction Tendency
Alternate descriptor: We “read too much” into situations involving contrast, and, conversely, pay too little attention to small changes, just below our level of awareness.

A bad price seems good because it is “on sale” from an even higher price. We accept a bad situation simply because it feels better than a previous, even worse situation. Alternatively, we underestimate the consequences of small changes, as when someone becomes addicted to a bad habit or dangerous substance in small steps, or when one becomes dishonest little by little.

17. Munger Descriptor: Stress-Influence Tendency
Alternate descriptor: Stress can cause semi permanent changes in mental states.

Munger suggests that stress-induced depression can be coped-with, even without drugs, and he further theorizes that high stress can be used as a “brainwashing” and even an “un-brainwashing” tool.

18. Munger Descriptor: Availability-Misweighing tendency
Alternate descriptor: Proximity effect

The nearness (or proximity) of an influence can unduly magnify that influence, whereas rational thought would not allow such emphasis. This could apply to easily available (but non-nutritious) junk food, ideas in the media that are irrational (but are so prevalent that we tend to believe them more readily), or basing a decision on statistics, although countervailing “common sense” reasons might be unquantifiable.

19. Munger Descriptor: Use-It-Or-Lose-It-Tendency
Alternate descriptor: Decay of unpracticed skills

Munger recommends practice of various intellectual skills,not just in themselves, but because each intellectual skill provides a “latticework of theory” through which to organize experience. Lose ,say, a particular mathematical skill, and you will lose that “doorway” to understanding experience.

20. Munger Descriptor: Drug-Misinfluence Tendency
Alternate descriptor: impaired judgment due to drugs

Munger’s entry on this one is short, but passionate. Drugs are a recipe for failure in life. I’d like to add that, from my on observations, I believe that there are many degrees of judgment impairment due to drug use, and that the ability to focus and concentrate is swiftly, and perhaps permanently impaired by drug use. I suspect that several generations of Americans have lost their edge due to drugs being available freely, and I don’t see a change in that profile anytime soon.

21. Munger Descriptor: Senescence-Misinfluence Tendency
Alternate descriptor: Mental deterioration with age

Mental agility will decline with age, but can be maintained with practice. Munger is, of course, correct: new research continues to come in about using both mental and physical exercise to maintain mental capacity in later years.

22. Munger Descriptor: Authority-Misinfluence Tendency
Alternate descriptor: Irrationally strong obedience to authority

People tend to follow authority, even though this obedience can produce negative results. Literal interpretation can produce tragic (or even darkly humorous, but disastrous) effects. Blind obedience can also produce horrors of immense magnitude (as in the Nazi-created Holocaust).


23. Munger Descriptor: Twaddle Tendency
Alternate descriptor: Tendency to say meaningless things. At length.

Much is said in our world that is meaningless, and it is often misconstrued to be meaningful. So much is meaningless that the volume of “twaddle” impairs our ability to go about our lives in meaningful ways. Munger exhorts us to make real effort to separate people and ideas that have meaning from his vast overload of people and ideas that, in fact, have little or no meaning or value.

24. Munger Descriptor: Reason-Respecting Tendency
Alternate Descriptor: People tend to comply when a reason, even a bad one, is given.

Munger hastens to remind us that he strongly believes that the use of the word “why”, and the use of a “latticework of theory” are invaluable in assimilating learning and experience. In general, his entire monograph is in favor of finding dispassionate reasoning processes. This particular mention of “Reason-Respecting Tendency” is to remind us that the word “reason” may not, in fact, be an adequate reason for anything, even if someone says it is.

25. Munger Descriptor: Lollapalooza Tendency
Alternate Descriptor: Multiple influences acting together can produce extreme consequences.

An example might be when one would jump to a conclusion due to both Availability- Misweighting (access to easily available data) and Doubt-Avoidance tendency (tendency to quickly remove doubt).