This series of posts will be an exploration of Charlie Munger’s Psychology of Human Misjudgment. 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. I suggest using the link above to download the pdf. The most recent collection of Munger’s ideas on this subject include 25 concepts. The list here is derived from that numbering.
1. Munger's 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’s 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’s 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.
Implicit in Munger’s treatment is the concept that we should expect this tendency to override “rational” or other “expected” behavior .
To be continued...
Techtags: Charlie Munger Warren Buffett Psychology