HereAreThe25PsychologicalBiases

ThatCauseUsToMakeBadDecisionsByMichaelSimmonsWithIanChew

Itisremarkablehowmuchlongtermadvantagepeoplelikeushavegottenbytryingtobeconsistentlynotstupid,insteadoftryingtobeveryintelligent.Theremustbesomewisdominthefolksaying,`Itsthestrongswimmerswhodrown.CharlieMunger

Illustrationcredit:SuccessLabsCopyrightMichaelSimmons2015.AllRightsReserved.

Overview Wehumanshaveevolvedovertensofthousandsofyearsinanenvironmentthatisverydifferentthantheoneweliveinnow.Duringthisevolutionprocess,wedevelopedunconsciousbiases,whichhelpedussurviveinthosetoughenvironments,butcanhinderusintodaysmodernsociety.Byrecognizingthosebiasesandapplyingthemtoourdecisionmaking,wecanmakeinfinitelybetterdecisions.Overhis70yearcareer,CharlieMunger(WarrenBuffettslongtimebusinesspartner)hasdoneexactlythis.Theendresultarethebiasesbelow,whichweexcerptedandcondensedfromseveralofMungersspeeches.UnderstandingthesebiaseshavehelpedCharlieandWarreninseveralways:

AvoidingSmartPeopleMistakes.Therearecertaintypesofmistakesthatpeoplewhoaresmartandambitiousareparticularlyproneto.Inhisbook,PoorCharliesAlmanack,Charlietalksaboutthecolossalfailureofthehedgefund,LongTermCapitalManagementinthelate1990s.LedbysomeofthesmartestpeopleintheworldincludingNobelLaureates,itultimatelywentbankruptanddestroyedthenetworthsandreputationofitsleaders.IftheyhadusedCharliesmodel,theywouldhaveseenthecolossalrisktheyweretakingandthefactthattheywerealreadyextremelysuccessfulandhadbuiltupreputations,sotheriskwasparticularlynotworthit.

MakingCriticalDecisions.Theyhavemadethebiasesactionablebyturningthemintochecklistsandusingthemwhenmakinginvestmentdecisions.Thesebiasesuniquelyhelpthemunderstandbehaviorsandpredictthefuturebetterthantheircompetitors.

ProtectingThemselvesFromManipulation.Thebiasesbelowoccuratasubconsciouslevel.Therefore,itshardtoidentifywhenpeopleareusingthesetoinfluenceyourbehavior.Knowingthesebiasesandhavingachecklisttoprotectagainstthemhelps.

Table Of Tendencies Ouraimistohelpyourealizewhatthebiasesare,howtheyarerelevanttoyourlife,andtogiveyouresourcestogodeeper.(Ofcourse,theultimateresourceisCharlies500pagebook,PoorCharliesAlmanack.)

1. Reward&

Punishment

2.Liking/Loving

3.Disliking/Hating

4.Doubt/Avoidance

5.Inconsistency

Avoidance

6. Curiosity

7.KantianFairness

8.Envy/Jealousy

9. Reciprocation

10. InfluenceFromMereAssociation

11.PainAvoiding

Denial

12.ExcessiveSelfRegard

13.OverOptimism

14. Deprival

Superreaction

15.SocialProof

16. Contrast

Misreaction

17. StressInfluence

18.AvailabilityMisweighing

19.Authority

Misinfluence

20.Twaddle

21. Reason

Respecting

22. Lollapalooza

23.TakeAction

24.Resources

1. Reward & Punishment Superresponse Tendency InMungersexperience,peopletendtobemostmotivatedbyincentivesespeciallybytherightrewards.Byunderstandingincentives,youcanmoreeffectively:

InfluenceOthers.Wanttogetanindividualorateamtodosomething?Mungersaysyouneedtoanswerthisquestioncorrectly:Whatsinitforthem?

ProtectYourselfFromBadAdvice.Mungercautionsustobecarefulofprofessionaladvicethatmightbeshapedbytheadvisorspersonalinterest.

InfluenceYourself.Byunderstandingwhatreallydrivesyou,youcandriveyourself.

Quotes

Ifyouwouldpersuade,appealtointerestandnottoreason.BenFranklin

Perhapsthemostimportantruleformanagementisgettheincentivesright.Munger

Antidotes

Bewaryofpeoplesactionsandbehaviors.analyzethecontexttoseeifthereareanyulteriormotives.

ObeyMungersGrannyRule.GrannysRuleischildreneattheircarrotsbeforetheygetdessert.Getyourhardestworkdonebeforerewardingyourself.

ExampleStudentswhoarerewardedfortheirhardworkatschoolbutnottheirtestscoreshavehigheracademicachievements.ResourceDrive:TheSurprisingTruthAboutWhatMotivatesUs

2. Liking/Loving Tendency Mungerarguesthatwearewiredtonaturallyfavorpeoplewelikeandlovetothepointofirrationality.Insocialpsychology,thistendencyisknownasingroupbias.Inordertokeeplikingandlovingthem,wedothefollowingbehaviorsthatwemaynothavedoneotherwise:

Distortfacts Ignorefaults Complywithwishes Favorpeople,products,andactionsmerelyassociatedwiththeobjectofaffection.

Weevengotogreatlengthsinordertokeepbeinglikedandlovedbyothersevenpeoplewedontknow.

Quotes ...[Man]willgenerallystarve,lifelong,fortheaffectionandapprovalofmanypeoplenotrelatedtohim.Munger

Examples IfyouidentifyasDemocrat,youwouldfindBarrackObamamoreattractivethanSarah

Palinandviceversa.

Inoneresearchstudy,babieswereshowntofavorresearchersofthesamerace.

Antidotes Beawareofhowlikingorlovingothersdistortsyourlogic.

Whenbuildingrelationshipswithothers,dowhateveryoucantostartthe

relationshipoffaspartoftheingroup.

Resource14HabitsOfExceptionallyLikablePeople

3. Disliking/Hating Tendency Theoppositeoftheliking/lovingtendencyisalsotrue.Wetendtodisfavorpeoplewealreadydislikeandhatetolevelofirrationality.Thisresultsin:

Ignoringvirtuesofpeoplewedislike. Dislikingpeople,products,andactionsmerelyassociatedwiththeobjectofourdislike. Distortingfactsinordertofacilitatethehatred.

Quotes[A]majordifferencebetweenrichandpoorpeopleisthattherichpeoplecanspendtheirlivessuingtheirrelatives.WarrenBuffetasquotedbyMungerPoliticsistheartofmarshallinghatreds.Anonymous

Examples WhentheWorldTradeCenterwasdestroyed,manyPakistanisimmediately

concludedthattheHindusdidit,whilemanyMuslimsconcludedthattheJewsdidit.Munger

Similarly,post911yearssawinvestmentfundmanagerswithforeignsoundingnamesexperiencingreducedfundflowfrominvestors,incomparisontocounterpartswithcommonplaceAmericannames. Inotherwords,beforehavingevidence,theyusedthetragedytofurthertheirpreexistinghatred.

Resource ElizabethLesserTaketheOthertoLunch(TEDTalk)

4. Doubt/Avoidance Tendency Thehumanbrainhasevolvedtoresolveopenissues(i.e.,cognitivedissonance)bymakingdecisions.Partofourspeedydecisionmakingprocesscomesataprice:weeliminateanypotentialdoubts,whichmightcauseustomakemistakes.

Whatnormallytriggersthetendencyissomecombinationof:

1. Puzzlement2. Stress

QuotesAfterall,theonethingthatissurelycounterproductiveforapreyanimalthatisthreatenedbyapredatoristotakealongtimeindecidingwhattodo.MungerSopronouncedisthetendencyinmantoquicklyremovedoubtbyreachingsomedecisionthatbehaviortocounterthetendencyisrequiredfromjudgesandjurors.Munger

Antidotes Forceyourselftotakeabreakand/ordelaybeforemakingadecision.

Example Toyotaengineerspracticeaproductionsystemofdelayingdecisions,dubbedthesecondTokyoparadox,toproducebetterandcheapercars.

Resources ImproveYourDecisionMakingSkillsByDoingThisOneSimpleThing MistakesWereMade(ButNotbyMe):WhyWeJustifyFoolishBeliefs,BadDecisions,

andHurtfulActs

5. Inconsistency-Avoidance Tendency Werarelydothingsthatareinconsistentwithouridentity,beliefs,andhabits.Tosaveenergy,weareoftenreluctanttochangeourhabits,especiallybadones.Suchbadhabitsincludebiasedthinkingpatterns.Thesepatternsleadtocognitiveerrors,limitingourchoiceofactionsinlife.

QuotesWhenMarleys[ChristmasCarol]miserableghostsays,IwearthechainsIforgedinlife,heistalkingaboutchainsofhabitthatweretoolighttobefeltbeforetheybecametoostrongtobebroken.Munger

Therarelifethatiswiselylivedhasinitmanygoodhabitsmaintainedandmanybadhabitsavoidedorcured.MungerAnounceofpreventionisworthapoundofcure.PoorRichardsAlmanackOnecorollaryofInconsistencyAvoidanceTendencyisthatapersonmakingbigsacrificesinthecourseofassuminganewidentitywillintensifyhisdevotiontothenewidentity[i.e.,hazingatfraternities].Munger

Antidotes Realizethateveryactionyoutakeleadstogoodhabitsorbadhabits.So,

endeavortoconstantlybecreatingnew,positivehabits.

Becarefulaboutthebeliefsyoutakeon.First,findsufficientevidencetodisproveyourpointfirstbeforebelievinginit.CharlesDarwintrainedhimself,early,tointensivelyconsideranyevidencetendingtodisconfirmanyhypothesisofhis,moresoifhethoughthishypothesiswasaparticularlygoodone.

Findwaystochallengeyourpreconceivedbeliefs.ElonMuskproactivelyseeksoutideasthatchallengehisexistingbeliefs.Athispeak,Einsteinwasagreatdestroyerofhisownideas.

Example Stanfordprofessor,BJFogg,isoneoftheworldstopexpertonhabits.Hesharesthatthesimpleactofflossingonetoothcanleadtomuchbetterhabitsinlife.Notonlythesmallhabitminimizestheresistancetowardsnewhabitscausedbyourinconsistencyavoidancetendencyitbreakstheunproductivecognitivepatternwemighthaveinourlifestyleandhelpsusbuildbigger,betterhabits.

Resources UnleashYourPotential:HowToChallengeYourAssumptionsAnd

ExpandYourThinking WednesdayWorkout:TestingYourAssumptions TinyHabitsMethodology

6. Curiosity Tendency Mungerarguesthatcuriositynotonlycountersthenegativeeffectsofourpsychologicaltendencies,italsoletsusenjoytheprocessoflearningandacquiringknowledge.Quotes

Manscuriosity,inturn,ismuchstrongerthanthatofhissimianrelatives.Munger

Curiosity,enhancedbythebestofmoderneducation(whichisbydefinitionaminoritypartinmanyplaces),muchhelpsmantopreventorreducebadconsequencesarisingfromotherpsychologicaltendencies.Thecuriousarealsoprovidedwithmuchfunandwisdomlongafterformaleducationhasended.Munger

ExampleLateMITprofessor,AmarBose,usedinsatiablecuriositytodiveintosubjectslikenuclearphysics,aswellascreatehisaudioequipmentcompanyfromscratch.

Resources HowtoThinkLikeLeonardodaVinci:SevenStepstoGeniusEveryDay Curious:TheDesiretoKnowandWhyYourFutureDependsOnIt

7. Kantian Fairness Tendency CitingKantandhiscategoricalimperative,Mungerarguesthatreciprocalcourtesyisasocietalnorm,atleastinUnitedStates.Whenwearenottreatedfairly,oftenwebecomeveryangryand/orfrustrated.

InafamousPrisonersDilemmaexperiment,whenonepersonfeelsbetrayedbyanother,thatpersonwillnotactoutofhis/herownimmediateselfinterestinordertopunishtheotherperson.Quotes

[There]is,inmodemhumanculture,alotofcourteousliningupbystrangerssothatallareservedonafirstcomefirstservedbasis.Munger

Example Asearlyas15months,babiescanrecognizetheconceptoffairnesswhenitcomestosharingfood.Inoneofthetasksduringtheresearchstudy,babieswhopreviouslyreactedtounequalfooddistributionsharedtheirpreferredtoyswithastranger.

Resource SuperCooperators:Altruism,Evolution,andWhyWeNeedEachOthertoSucceed

8. Envy/Jealousy Tendency Mungerpointshowoutourevolutionarydesiretoownotherspossessionsleadstoworsesituationslikehatred,fightsandsoon.AbrahamTessersacademicresearchontheSelfEvaluationModelcounterintuitivelyshowsthatourselfesteemsuffersandtherefore,feelthemostjealousofotherpeoplewhentheyre:

Closetous(iesibling,friend) Outcompetingusinareasthatareimportanttous

Quotes

Itisnotgreedthatdrivestheworld,butenvy.WarrenBuffetasquotedbyMunger

Antidotes

Disarmotherpeoplesjealousyofyouwithvulnerability.

Practicemindfulnesswhenyoufeeljealousorenviousacceptandappreciateyouremotions.Youremotionsoftenaretellingyousomethingaboutyourself,andbeingawareofwhatmessagestheybringcanbringyounewpersonalinsights.

Example IntheWescoAnnualMeeting(2000),Mungermadethefollowingremarkontheimportanceofbeingsatisfiedwithonesownlife:Here'sonetruththatperhapsyourtypicalinvestmentcounselorwoulddisagreewith:ifyou'recomfortablyrichandsomeoneelseisgettingricherfasterthanyouby,forexample,investinginriskystocks,sowhat?!Someonewillalwaysbegettingricherfasterthanyou.Thisisnotatragedy.

Resources ToCreateaRealConnection,ShowVulnerability BeHappierwithYourLife:6WaystoLetJealousyGuideYou

9. Reciprocation Tendency Wearewiredtoreciprocate.Ifpeoplegivetous,wefeelweowetheotherperson.Similartothefairnesstendency,ifsomeonehurtsus,wefeeltheneedtohurtthemback.Companiescanusethisapproachto:

Startarelationshipbygivingsomething,evenifitssmall.

Negotiatebyaskingforsomethingbigandunrealisticatfirst,andthenwhenthepersonsaysno,askforsomethingthatissmallerthatistheultimatethingyouwantedanyway.InanexperimentperformedbyRobertCialdini,thisapproachwasincrediblyeffective.

Usethefootinthedoortechnique(a.k.a.,FranklinEffect)byaskingforsomethingsmallthateveryonewillsayyestoandthenincreasethesizesoftheasks.

Quotes

Theautomatictendencyofhumanstoreciprocatebothfavorsanddisfavorshaslongbeennoticedasitisinapes,dogs,andmanylesscognitivelygiftedanimals.Thetendencyfacilitatesgroupcooperationforthebenefitofmembers.Munger

Antidotes Startanddeveloprelationshipsbyproactivelygiving.Mostpeoplewillreciprocate.

Wiseemployers,therefore,trytoopposereciprocatefavortendenciesofemployees

engagedinpurchasing.Thesimplestantidoteworksbest:Dontletthemacceptanyfavorsfromvendors.

Thestandardantidotetoonesoveractivehostilityistotrainoneselftodeferreaction.AsmysmartfriendTomMurphysofrequentlysays,Youcanalwaystellthemanofftomorrow,ifitissuchagoodidea.

Example JohnCorcoran,anattorneywhoworkedasaWhiteHousespeechwriterat23yearsold,sharedhowBillClintonwouldnotonlywritehandwrittennotestofollowupwithcontacts,hewouldfreelygivehistimetostrangersateventstofulfilltheirvariousrequestslikeautographing.Bygivingfirst,peoplewilltendtoreciprocatewhenyouaskforfavors.

Resources Influence:ThePsychologyofPersuasion GiveandTake:WhyHelpingOthersDrivesOurSuccess IfYouWantToGoFast,GoAlone.IfYouWantToGoFar,GoTogether

10. Influence-From-Mere-Association Tendency Weperceivepeopleorthingsdifferentlydependingonwho/whattheyareassociatedwith.Advertisershavelongunderstoodthis.Theylinktheirproductstothingsthatwilltriggertheresponsestheywantyoutohave.Thisisalsoknownasclassicalconditioning.Sometimeswhenpeoplereceiveafavorwhentheyreinpain(poor,sick,etc.),theyassociatethepersonthatgavethemthefavorwiththepain.Asaresult,thefavorjustreinforcesthepain.Ifwelinkapasteventwherewegotluckytoskillratherthanluck,thenwewillmakepoorchoicesaboutthefuture.Quotes

Advertisersknowaboutthepowerofmereassociation.YouwontseeCokeadvertisedalongsidesomeaccountofthedeathofachild.Instead,Cokeadspicturelifeashappierthanreality.Munger

Someofthemostimportantmiscalculationscomefromwhatisaccidentallyassociatedwithonespastsuccess,oroneslikingandloving,oronesdislikingandhatingwhichincludesanaturalhatredforbadnews.Munger

Hatinganddislikingalsocausemiscalculationtriggeredbymereassociation.Inbusiness,Icommonlyseepeopleunderappraiseboththecompetencyandmoralsofcompetitorstheydislike.Thisisadangerouspractice,usuallydisguisedbecauseitoccursonasubconsciouslevel.Munger

Antidotes Carefullyexamineeachpastsuccess,lookingforaccidental,noncausativefactors

associatedwithsuchsuccessthatwilltendtomisleadasoneappraisesoddsimplicitinaproposednewundertaking.

Lookfordangerousaspectsofthenewundertakingthatwerenotpresentwhenpastsuccessoccurred.

Dontshootthemessengermakeahabitofwelcomingbadnewstocounterthistendency!Alwaystellusthebadnewspromptly.Itisonlythegoodnewsthatcanwait.commoninjunctionatBerkshire

Example

Bycontinuouslyassociatingtopathleteswithitsproductsoverdecades,Nikehasbuiltaglobalbrandthatistrustedbyconsumers.Ithaslinkedthisfeelingwithitsswooshlogo.ResourceDon'tShoottheDog!:TheNewArtofTeachingandTraining

11. Pain-Avoiding Psychological Denial Wetendtodistortfactsforourownpsychologicalcomfort.Thispsychologicaldiscomfortisknownascognitivedissonance.Ifwemakeahabitofcontinuallyavoidinginformationthatispainful,wellnotonlydevelopadistortedviewofreality,welltrainotherpeoplenottotellusthetruth.Quotes

Itisnotnecessarytohopeinordertopersevere.WilliamtheSilent

Antidote

Dontresolvecognitivedissonancebydistortingrealityinordertomakeyoufeelbetter.Findawaytoalwayskeepyourselfopentothefactsofanysituationsoyoucanmakethemostsoundchoices.

Example IntheclassicAesopsfable,thefoxclaimedthatthegrapesweresourafterfailingtogettheminordertocopewiththefactthathecouldntreachthem.Areallifecomparisonwouldbethecultleaderwhofailstopredicttheendoftheworldtimeandagainandeachtimecomesupwithadifferentexcuse.ResourceMistakesWereMade(ButNotbyMe):WhyWeJustifyFoolishBeliefs,BadDecisions,andHurtfulActs

12. Excessive Self-Regard Tendency Weareoverconfidentthinkingwerebetterthantheaverageperson.Severalstudiesofselfperception,showthatforanygiventrait,morethan50%ofpeoplethinktheyreaboveaveragefromunsophisticatedcomputeruserswhothinktheyarecybercrimeexperts,toHarvardBusinessSchoolstudentswhothinkthattheyarebetterlookingthaneveryoneelse.ThisisknownastheEndowmentEffect.Beingoverconfidentcanleadtomanyshortcomingsforexample,overconfidentstudentsdosignificantlypoorerontests.Theresultofthisisoverappraisingthingsweown,decisionswemake,andpeoplelikeusunderappraisingthingsthatchallengeourselfregard.Quotes

Mansexcessofselfregardtypicallymakeshimstronglypreferpeoplelikehimself.Munger.Thisisalsoknownashomophily. Evenmansminorpossessionstendtobeoverappraised.Onceowned,theysuddenlybecomeworthmoretohimthanhewouldpayiftheywereofferedforsaletohimandhedidntalreadyownthem.Munger.[A]manshouldtrytofacethetwosimplefacts:

Fixablebutunfixedbadperformanceisbadcharacterandtendstocreatemoreofitselfcausingmoredamagetotheexcusegiverwitheachtoleratedinstance.

Indemandingplaces,likeathleticteamsandGeneralElectric,youarealmostsuretobediscardedinduecourseifyoukeepgivingexcusesinsteadofbehavingasyoushould.Munger

Antidotes Excessesofselfregardoftencausebadhiringdecisionsbecauseemployersgrossly

overappraisetheworthoftheirownconclusionsthatrelyonimpressionsinfacetofacecontact.Thecorrectantidotetothissortoffollyistounderweighfacetofaceimpressionsandoverweightheapplicantspastrecord.Munger

ThemaininstitutionalantidotestothispartoftheTolstoyeffectare:

Offermeritocratic,demandingculture,pluspersonalhandlingmethodsthatbuildupmorale,and

Severanceoftheworstoffenders.Munger

Thebestantidotetofollyfromanexcessofselfregardistoforceyourselftobemoreobjectivewhenyouarethinkingaboutyourself,yourfamilyandfriends,yourproperty,andthevalueofyourpastandfutureactivity.

Ofallformsofusefulpride,perhapsthemostdesirableisajustifiedprideinbeingtrustworthy.Moreover,thetrustworthyman,evenafterallowingfortheinconveniencesofhischosencourse,ordinarilyhasalifethataveragesoutbetterthanhewouldhaveifheprovidedlessreliability.Munger

Resources ManagingOverconfidence TheWinnerEffect:TheNeuroscienceofSuccessandFailure

13. Over-Optimism Tendency Wetendtobefoolishlyoptimisticwithoutcalculatingtherisks.Inanticipationofgoodfutureoutcomesandhowmuchcontrolwehaveoverthemweoverestimatehowmuchcontrolwehaveoverthem.NeuroscientistTaliSharotsresearchsuggeststhattheoptimismbiashasevolvedtobecomeanintegralpartofthehumanpsyche,regardlessofonesrace,genderandnationality.Twosoberingexamplesareweareoveroptimisticregardinghowfastwecanpayoffourstudentdebt,orhowwellwecanuseourdrivingskills.

QuotesWhatamanwishes,thatalsowillhebelieve.Demosthenes,themostfamousGreekorator

Antidotes Onestandardantidotetofoolishoptimismistrained,habitualuseofthesimple

probabilitymathofFermatandPascal,taughtinmyyouthtohighschoolsophomores.Munger

Example ThelateSteveJobsrefusedsurgeryatfirstwhenhewasfirstdiagnosedwithcancer,

thinkingthathecouldbeattheailmentbyusingalternativemedicinaltreatments,butnoneworkedtohisavail.

Resource TheOptimismBias:Whywe'rewiredtolookonthebrightside TheMungerNetworkOfMentalModels(page5)

14. Deprival-Superreaction Tendency Wetendtointenselyreacttoanyreallossorpotentiallossirrationally.Thisexplainsinfightingthatoccurswithinbureaucracies.Quotes

Amanordinarilyreactswithirrationalintensitytoevenasmallloss,orthreatenedloss,ofproperty,love,friendship,dominatedterritory,opportunity,status,oranyothervaluedthing.Munger.Timeandagain,studieshaveshownthatlossandthethreatofitisapowerfulmotivationforhumanbeings,fromhighstakeinternationalpoliticstodailyconsumptionbehavior.Examplesofhowwefearpotentiallossesaboundinreallife:losingacointoss,missingashoppingdeal,andsoon.

DeprivalSuperreactionTendencyisalsoahugecontributortoruinfromcompulsiontogamble.First,itcausesthegamblertohaveapassiontogetevenoncehehassufferedloss,andthepassiongrowswiththeloss.Second,themostaddictveforms

ofgamblingprovidealotofnearmissesandeachonetriggersDeprivalSuperreactionTendency.Munger

Antidotes Oneantidotetointense,deliberatemaintenanceofgroupthinkisanextremeculture

ofcourtesy,keptinplacedespiteideologicaldifferences,likethebehaviorofthejusticesnowservingontheU.S.SupremeCourt.Munger

Anotherantidoteistodeliberatelybringinableandarticulatedisbelieversofincumbentgroupthink.SuccessfulcorrectivemeasurestoevilexamplesofgroupthinkmaintenancehaveincludedactionslikethatofDerekBokwhen,aspresidentofHarvard,hestarteddisapprovingtenureappointmentsproposedbyideologuesatHarvardLawSchool.Munger

Oneofthebestantidotestothisfollyisgoodpokerskilllearnedyoung.Theteachingvalueofpokerdemonstratesthatnotalleffectiveteachingoccursonastandardacademicpath.Munger

Resources LettersfromaStoic OvercomingtheFearofLoss:5StepstoGetUnstuck

15. Social-Proof Tendency Wearewiredtomakeahugenumberofdecisionsinourlifebasedpurelyonotherpeoplesactions.Theeffectissostrongthatevenifwearesurroundedbyasmallgroupofpeoplewhoinsistthatblueisgreen,thenwellquestionourownreality.Entrepreneurswhocreatepublicsocialproofoftheirproduct(i.e.positivecustomerreviews)getmoresales.Quotes

WhenwilltheSocialProofTendencybemosteasilytriggered?Heretheanswerisclearfrommanyexperiments:Triggeringmostreadilyoccursinthepresenceofpuzzlementorstress,andparticularlywhenbothexist.MungerInsocialproof,itnotonlyactionbyothersthatmisleadsbutalsotheirinaction.Inthepresenceofdoubt,inactionbyothersbecomessocialproofthatinactionistherightcourse.Munger

Insocialproof,itisnotonlyactionbyothersthatmisleadsbutalsotheirinaction.Inthepresenceofdoubt,inactionbyothersbecomessocialproofthatinactionistherightcourse.Thus,theinactionofagreatmanybystandersledtothedeathofKittyGenoveseinafamousincidentmuchdiscussedinintroductorypsychologycourses.MungerMonkeysee,monkeydoAnonymous

Antidotes

Learnhowtoignoretheexamplesfromotherswhentheyarewrong,becausefewskillsaremoreworthhaving.Munger

BecausebothbadandgoodbehavioraremadecontagiousbySocialProofTendency,itishighlyimportantthathumansocieties:

Stopanybadbehaviorbeforeitspreads. Fosteranddisplayallgoodbehavior.

Example Restaurantownersshouldespeciallypayattentiontotheimpactofcustomerreviewsontheirproducts,becauseaHarvardBusinessSchoolstudypointedoutthataonestarincreaseinYelpratingleadstoa59percentincreaseinrevenue,largelybecausecustomerstrustothercustomersthemostingeneral.Resource

Influence:ThePsychologyofPersuasion Contagious:WhyThingsCatchOn

16. Contrast-Misreaction Tendency Ourconsciousmindislimited.Therefore,wecantregistereverydetailthatwesee,hear,feel,taste,andsmellineverymoment.Ourbrainunconsciouslymakeschoicesaboutwhereourattentionflows.Oneofthewaysthatitmakesthisdecisionisbysuddenchange.Ifwehearaloudsoundallofasudden,ourattentionimmediatelygoesthere.Thissameprincipleappliestotheworldofvalue.Wedontmeasurethevalueofthingsinavacuum.Weoftennoticevaluebycontrastingitwithsomethingelse.Retailerstakeadvantageofthisbyattachinganartificiallyhighpricetotheirproductandthenprovidingasignificantdiscount.

Quotes Thestockmarketisfilledwithindividualswhoknowthepriceofeverythingbutthevalueofnothing.PhillipFisherAsmallleakwillsinkagreatship.Theutilityoftheaphorismislargepreciselybecausethebrainsooftenmissesthefunctionalequivalentofasmallleakinagreatship.BenFranklinCognition,misledbytinychangesinvolvinglowcontrast,willoftenmissatrendthatisdestiny.Munger

Antidotes

Trainyourselftonoticesmallchangesthatotherpeoplemiss.Thisgivesyoutheabilitytostopbadchainreactionsbeforetheyspread,andinvest/nurturepositiveonesbeforetheyspread.Mostfamously,CharlesDarwintrainedhimselftometiculouslytrackverysmallvariationsofanimalfeaturesovermanyyears.TheseobservationsultimatelyledDarwintotheTheoryofEvolution.

Trainyourselftomakesmallchangestoyourhabits.Makeamicroresolutionasmall,specificmeasurablegoalthatwillkeepyouaccountableonaregularbasis,withouttriggeringyourInconsistencyAvoidanceTendency.

Examples

Byrunningfiveminutesaday,youcanreducechancesofdyingprematurelyby30%.Resources

Mastermind:HowtoThinkLikeSherlockHolmes HowtoMakeaMicroresolution

17. Stress-Influence Tendency Somestresshelpsusfocus,buttoomuchdestroysourdecisionmakingcapabilities.Therefore,wemustlearnhowtomanagestressinsituations,sothatwemakethebestdecisionspossible.

InethicallyquestionableexperimentsperformedbyNobelLaureate,IvanPavlov,wherehestressinducednervousbreakdownsindogsandtriedtoreversetheeffects,hefound:

Hecouldclassifydogssoastopredicthoweasilyaparticulardogwouldbreakdown. Thedogshardesttobreakdownwerealsothehardesttoreturntotheir

prebreakdownstate.

Anydogcouldbebrokendown. Hecouldntreverseabreakdownexceptbyreimposingstress.

Quotes...Theheavyhandedimpositionofstressmightbetheonlyreversalmethodthatwouldworktoremedyoneoftheworstevilsimaginable:astolenmind.Munger

Antidotes Listentoyourbody.Whenyoufeelpersistentlyoverwhelmed,takeastepback.

Meditate.Multipleresearchstudieshaveproventhatmeditationishighlyeffectivein

regulatingouremotions,especiallyourcapacitytocopewithstress,mainlybyincreasingourmindfulnesstowardsnegativeemotions.

Rest,nap,sleep.No,noskimpingyourbrainneeds100%ofitsresttime.

Resources Mindfulness:AnEightWeekPlanforFindingPeaceinaFranticWorld 8ReasonsWhyYouShouldDefinitelyTakeThatLunchBreak

18. Availability-Misweighing Tendency Wetendtooveremphasizeinformationthatisthemostavailableandvividfromoursurroundingsandourmind.Intheacademicworld,thisisknownastheAvailabilityBias.Unfortunately,Theeasinessdoesntmeanthattheinformationisthemostusefulone.Thiscanworktopeoplesbenefitintheworldofpersuasionandmemory.Bypaintingavividpictureofsomething,wecanmoreeffectivelyinfluenceothersandkeepideasinourownmemories.Wheningroupenvironments,simpleexplanationsofcomplexphenomenacanrapidlygaincurrencyandspreadeveniftheyrewrong.Thisisknownastheavailabilitycascade.Quotes

Anideaorafeatisnotworthmoremerelybecauseitiseasilyavailabletoyou.MungerWhenImnotnearthegirlIlove,IlovethegirlImnear.FrankSinatra

Antidotes

Trainyourselftobrainstormallpossibilitiesopenlyratherthanjumpingonyourfirstconclusions.Developyourstrategicthinkingabilitiestotacklecomplexproblems.

Useachecklist,orprocedures,tocurbthistendency.

Alwayslookforevidencethatdisprovesyourpoints,andconsistentlydoso.

Getskepticalpeopleonboardorassignadeviladvocateroletosomeoneyoutrust,sothatyouropinionsarechallengedbydisconfirmingevidence.

Wheninmeetings,letotherpeopletalkfirstsoyoudontbiashowtheyrespond.

Resource

MakingDumbGroupsSmarter

19. Authority-Misinfluence Tendency Wetrustandrespectleaderstoomuch,evenwhentheymakemistakes.Wealsotrustleadersinareaswheretheyarenotexperts.ThisisknownastheHaloEffect.Quotes

[Man]isoftendestinedtosuffergreatlywhentheleaderiswrongorwhenhisleadersideasdontgetthroughproperlyinthebustleoflifeandaremisunderstood.Munger

Antidotes

[Be]carefulwhomyouappointtopowerbecauseadominantauthorityfigurewilloftenbehardtoremove,aidedashewillbebyAuthorityMisinfluenceTendency.Munger

Useachecklistandacriticalmindtocounteroratleastreducetheinfluenceofauthority.

Resource Influence:ThePsychologyofPersuasion

20. Twaddle Tendency Peopletendtotalkalotaboutthingstheyrenotanexpertin.Beverycarefulofthesepeople.Instead,trytosurroundyourselfwithpeoplewhoshowrestraintinsharingtheiropinionsuntiltheyremoreprovenorthoughtthrough.Quotes

Man,asasocialanimalwhohasthegiftoflanguage,isborntoprattleandtopourouttwaddlethatdoesmuchdamagewhenseriousworkisbeingattempted.Somepeopleproducecopiousamountsoftwaddleandothersverylittle.Munger

Example

DavidOgilvy,oneofthefoundingfathersinmodernadvertising,hadthistosaywhenitcomestohiringathisagency:Ourofficesmustalwaysbeheadedbythekindofpeoplewhocommandrespect.Nophonies,zerosorbastards.Hiswisdominhiringtalentswhoupholdprofessionalintegrityintheworktheydoisapowerfulsolutiontothetwaddletendencya.k.abullshit.

Antidotes

Theprincipaljobofanacademicadministrationistokeepthepeoplewhodontmatterfrominterferingwiththeworkofthepeoplethatdo.Caltechengineeringprofessor

Resources

Managingyourself:TheBossAsHumanShield AreYouListeningLikeALeader

21. Reason-Respecting Tendency Beforedoingthings,welovetohavereasons.Therefore,whendelegatingthingstootherpeople,besuretosharethereasonswhythetaskisimportant.Inafamousstudybyresearcher,EllenLanger,sheshowedthatwhenaskingforafavorfromastranger,simplygivingareasonfortherequest,evenifitsartificial,greatlyincreasestheoddsofthepersoncomplying.

QuotesThereisinman,particularlyoneinanadvancedculture,anaturalloveofaccuratecognitionandajoyinitsexercise.Munger Ingeneral,learningismosteasilyassimilatedandusedwhen,lifelong,peopleconsistentlyhangtheirexperience,actualandvicarious,onalatticeworkoftheoryansweringthequestion:Why?Indeed,thequestionWhy?isasortofRosettastoneopeningupthemajorpotentialityofmentallife.MungerUnfortunately,ReasonRespectingTendencyissostrongthatevenapersonsgivingofmeaninglessorincorrectreasonswillincreasecompliancewithhisordersandrequests.Munger

Antidotes

Keeptrackoftheevidenceforyourvalidbeliefssothatwhenyouexplainittoothers,itmakessense.

Resource

XeroxMindfulnessExperiment

22. Lollapalooza Tendency LollapaloozaTendencyisthetendencytogetextremeconsequencesfromconfluencesofpsychologicaltendenciesactinginfavorofaparticularoutcome.Althoughitislastedlasthere,Mungercountsitasoneofthemostimportant.Thistendencyworksinoneoftwoways:

Effectsbolstereachother.InthefamousMilgramexperimentsatStanford,testsubjectsdevolvedintoterriblebehaviorinjustafewdaysasaresultofsixtendenciesbeingtriggeredatonce.InMungersexperience,whenyoucombinetwoforcestogether,youdontgetsimpleaddition,yougetanuclearexplosion.

Effectscanceleachotherout.Ascompaniesgrow,theygetbenefits(ieeconomiesofscale)anddisadvantages(iebeauracracy).

Byunderstandingallofthebiasesandhowtheyrelatetoeachother,youwillhaveahugeadvantageinyourlife.

QuotesTendency#1 Tendency#2 Results

Reciprocation InconsistencyAvoidance

1. Fulfillmentofpromisesmadeaspartofabargain,includingloyaltypromisesinmarriageceremonies,

2. Correctbehaviorexpectedfrompersonsservingaspriests,shoemakers,physicians,andallelse.Munger

InconsistencyAvoidance

DeprivalSuperreaction

Caseswherethereisextremesofideology,whicharemaintainedwithgreatintensityandwithgreatdisliketowardnonbelievers.

DeprivalSuperreaection

InconsistencyAvoidance

Formofbusinessfailurewheresomeonegraduallyusesupalltheirgoodassetsinafruitlessattempttorescueabigventuregoingbad.

SocialProof Incentives SerpicoSyndrome.NamedtocommemoratethestateofaneartotallycorruptNewYorkpolicedivisionjoinedbyFrankSerpico.Hewasnearlymurderedbygunfirebecauseofhisresistancetogoingalongwiththecorruptioninthedivision.Suchcorruptionwasbeingdrivenbysocialproofplusincentives.

SocialProofTendency

Envy/Jealousy+DeprivalSuperreaction

OnesuchinteractionamusedmyfamilyforyearsaspeoplerecalledthetimewhenmycousinRussandI,atagesthreeandfour,foughtandhowledoverasinglesurplusshinglewhilesurroundedbyavirtualseaofsurplusshingles.Buttheadultversionsofthisoccasion,boostedbypsychologicaltendenciespreservingideologies,arenotfunnyandcanbringdownwholecivilizations.TheMiddleEastnowpresentsjustsuchathreat.Munger

Quotes

Lifeisjustonedamnrelatednessafteranother.JulianHuxleyEveryonewhohastakenPscyh101knowsthatstressmakesSocialProofTendencymorepowerful.Munger

Example

AcombinationoffactorscausedApplestockpricestogodownbyalmost50%lastyear.

Resource

ExamplesOfLollapaloozaEffectInTheRealWorld

Apply The Tendencies To Your Life OneofMungersbiggestinsightsintopsychologicalbiasesisusingchecklists.ChecklistsallowMungertousetherightmodelsattherighttimewhenhesmakingimportantdecisions.AssharedinChecklistManifesto,checklistsaredeceivinglypowerful.Theauthor,AtulGawande,shareshowsimplechecklistsusedinsurgeriessavelives.Avoidablemistakeshappenwhensmartpeoplewhothinktheyknowitalldontusechecklists.InSeekingWisdom(294295),abookfullyendorsedbyCharlieMungerandWarrenBuffett,thefollowingchecklistisproposedforunderstandingtheimpactofourbiasesonanygivendecision:

Whatiscausingmetodothis?

Whatisthecontext?

CanIjudgehim?

Whatisinhisselfinteresttodo?

Whatarethepsychologicaltendenciesandshortcutsthatinfluencehimandcancausemisjudgment?

Whataretheconsequences?

WhatsystemwouldIliketohaveiftheroleswerereversed?

Isthistherightsystem?Two-Track Analysis

AnotherchecklistCharlieusesisTwoTrackanalysis.Itcombinesinsightsfrompsychology,neuroscienceandeconomicsaboutthenatureofhumanbehavior.Thismodelinstructsthatwhenanalyzinganysituationinwhichdecisionmakingbypeopleisinvolved,whichofcoursecoverseverybusinesssituation,hemustconsidertwotracks:

Howtheywouldactiftheybehavedrationally,accordingtotheirtruebestinterests.

Howtheywouldsuccumbtothepullofanumberofirrationalpsychologicalbiasesthatseemtobeprogrammedintothehumanbrain.

Books For Overcoming Limiting Psychological Biases

MistakesWereMade

(ButNotbyMe)

Thinking,FastandSlow

PsychologyofIntelligenceAnalysis

Yes!50ScientificWaystoBePersuasive

ChecklistManifesto TheLogicOfFailure

DeepSimplicity BreakingBias

Influence ThinkingInSystems

CharliesAlmanack SeekingWisdom

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