Tuesday, October 23, 2007

Success Secrets: Munger's "Misjudgment" Part 6

This is Part 6 of an attempt to summarize the concepts of Charlie Munger’s insightful "Psychology of Human Misjudgment".

Earlier sections:

Part 1

Part 2

Part 3

Part 4

Part 5

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


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