HereAreThe25

PsychologicalBiases
ThatCauseUsToMake
BadDecisions
ByMichaelSimmonsWithIanChew

Itisremarkablehowmuchlongtermadvantagepeoplelikeushave
gottenbytryingtobeconsistentlynotstupid,insteadoftryingtobe
veryintelligent.Theremustbesomewisdominthefolksaying,`Its
thestrongswimmerswhodrown.
CharlieMunger

Illustrationcredit:
SuccessLabs

CopyrightMichaelSimmons2015.AllRightsReserved.

Overview

Wehumanshaveevolvedovertensofthousandsofyearsinanenvironmentthatisvery
differentthantheoneweliveinnow.Duringthisevolutionprocess,wedeveloped
unconsciousbiases,whichhelpedussurviveinthosetoughenvironments,butcanhinderus
intodaysmodernsociety.

Byrecognizingthosebiasesandapplyingthemtoourdecisionmaking,wecanmakeinfinitely
betterdecisions.Overhis70yearcareer,CharlieMunger(WarrenBuffettslongtime
businesspartner)hasdoneexactlythis.Theendresultarethebiasesbelow,whichwe
excerptedandcondensedfromseveralofMungersspeeches.

UnderstandingthesebiaseshavehelpedCharlieandWarreninseveralways:

AvoidingSmartPeopleMistakes. Therearecertaintypesofmistakesthatpeople
whoaresmartandambitiousareparticularlyproneto.Inhisbook,PoorCharlies
Almanack, Charlietalksaboutthecolossalfailureofthehedgefund,LongTerm
CapitalManagementinthelate1990s.Ledbysomeofthesmartestpeopleinthe
worldincludingNobelLaureates,itultimatelywentbankruptanddestroyedthenet
worthsandreputationofitsleaders.

IftheyhadusedCharliesmodel,theywouldhaveseenthecolossalrisktheywere
takingandthefactthattheywerealreadyextremelysuccessfulandhadbuiltup
reputations,sotheriskwasparticularlynotworthit.

MakingCriticalDecisions. Theyhavemadethebiasesactionablebyturningthem
intochecklistsandusingthemwhenmakinginvestmentdecisions.Thesebiases
uniquelyhelpthemunderstandbehaviorsandpredictthefuturebetterthantheir
competitors.

ProtectingThemselvesFromManipulation. Thebiasesbelowoccurata
subconsciouslevel.Therefore,itshardtoidentifywhenpeopleareusingtheseto
influenceyourbehavior.Knowingthesebiasesandhavingachecklisttoprotect
againstthemhelps.

 Table Of Tendencies

Ouraimistohelpyourealizewhatthebiasesare,howtheyarerelevanttoyourlife,andto
giveyouresourcestogodeeper.(Ofcourse,theultimateresourceisCharlies500page
book,
PoorCharliesAlmanack .)

1. 2. 3. 4. 5.
Reward& Liking/Loving Disliking/Hating Doubt/Avoidance Inconsistency
Punishment Avoidance

6. 7. 8. 9. 10.
Curiosity KantianFairness Envy/Jealousy Reciprocation InfluenceFrom
MereAssociation

11. 12. 13. 14. 15.

PainAvoiding Excessive OverOptimism Deprival SocialProof
Denial SelfRegard Superreaction

16. 17. 18. 19. 20.

Contrast StressInfluence Availability Authority Twaddle
Misreaction Misweighing Misinfluence

21. 22. 23. 24.

Reason Lollapalooza TakeAction Resources
Respecting



1. Reward & Punishment Superresponse Tendency

InMungersexperience,peopletendtobemostmotivatedbyincentivesespeciallybythe
rightrewards.
Byunderstandingincentives,youcanmoreeffectively:

InfluenceOthers. Wanttogetanindividualorateamtodosomething?Mungersays
youneedtoanswerthisquestioncorrectly:Whatsinitforthem?

ProtectYourselfFromBadAdvice. Mungercautionsustobecarefulofprofessional
advicethatmightbeshapedbytheadvisorspersonalinterest.

InfluenceYourself. Byunderstandingwhatreallydrivesyou,youcandriveyourself.

Quotes

Ifyouwouldpersuade,appealtointerestandnottoreason.BenFranklin

Perhapsthemostimportantruleformanagementisgettheincentivesright.
Munger

Antidotes

Bewaryofpeoplesactionsandbehaviors. analyzethecontexttoseeifthereare
anyulteriormotives.

ObeyMungersGrannyRule. GrannysRuleischildreneattheircarrotsbefore
theygetdessert.Getyourhardestworkdonebeforerewardingyourself.

Example

Studentswhoarerewardedfortheirhardworkatschoolbutnottheirtestscores
have
higheracademicachievements .

Resource

Drive:TheSurprisingTruthAboutWhatMotivatesUs

2. Liking/Loving Tendency

Mungerarguesthatwearewiredtonaturallyfavorpeoplewelikeandlovetothepointof
irrationality.
Insocialpsychology,thistendencyisknownas
ingroupbias
.

Inordertokeeplikingandlovingthem,wedothefollowingbehaviorsthatwemaynothave
doneotherwise:

Distortfacts
Ignorefaults
Complywithwishes
Favorpeople,products,andactionsmerelyassociatedwiththeobjectofaffection.

Weevengotogreatlengthsinordertokeepbeinglikedandlovedbyothersevenpeoplewe
dontknow.

Quotes

...[Man]willgenerallystarve,lifelong,fortheaffectionandapprovalofmanypeople
notrelatedtohim.Munger

Examples

IfyouidentifyasDemocrat,youwould
findBarrackObamamoreattractivethanSarah
Palinandviceversa.

Inoneresearchstudy,babieswereshownto favorresearchersofthesamerace
.

Antidotes

Beawareofhowlikingorlovingothersdistortsyourlogic.

Whenbuildingrelationshipswithothers,dowhateveryoucanto
startthe
relationshipoffaspartoftheingroup.

Resource

14HabitsOfExceptionallyLikablePeople
3. Disliking/Hating Tendency

Theoppositeoftheliking/lovingtendencyisalsotrue.Wetendtodisfavorpeoplewealready
dislikeandhatetolevelofirrationality.Thisresultsin:

Ignoringvirtuesofpeoplewedislike.
Dislikingpeople,products,andactionsmerelyassociatedwiththeobjectofourdislike.
Distortingfactsinordertofacilitatethehatred.

Quotes

[A]majordifferencebetweenrichandpoorpeopleisthattherichpeoplecanspend
theirlivessuingtheirrelatives.WarrenBuffetasquotedbyMunger

Politicsistheartofmarshallinghatreds.Anonymous


Examples

WhentheWorldTradeCenterwasdestroyed,manyPakistanisimmediately
concludedthattheHindusdidit,whilemanyMuslimsconcludedthattheJewsdidit.
Munger

Similarly,post911yearssawinvestmentfundmanagerswithforeignsoundingnames
experiencingreducedfundflowfrominvestors,incomparisontocounterpartswith
commonplaceAmericannames.

Inotherwords,beforehavingevidence,theyusedthetragedytofurthertheir
preexistinghatred.

Resource

ElizabethLesserTaketheOthertoLunc
h
(TEDTalk)
4. Doubt/Avoidance Tendency

Thehumanbrainhasevolvedtoresolveopenissues(i.e.,
cognitivedissonance
)bymaking
decisions.Partofourspeedydecisionmakingprocesscomesataprice:weeliminateany
potentialdoubts,whichmightcauseustomakemistakes.

Whatnormallytriggersthetendencyissomecombinationof:

1. Puzzlement
2. Stress

Quotes

Afterall,theonethingthatissurelycounterproductiveforapreyanimalthatis
threatenedbyapredatoristotakealongtimeindecidingwhattodo.Munger

Sopronouncedisthetendencyinmantoquicklyremovedoubtbyreachingsome
decisionthatbehaviortocounterthetendencyisrequiredfromjudgesandjurors.
Munger

Antidotes

Forceyourselfto
takeabreak
and/ordelaybeforemakingadecision.

Example

Toyotaengineerspracticeaproductionsystemofdelayingdecisions,dubbed
thesecond
Tokyoparadox
,toproducebetterandcheapercars.

Resources

ImproveYourDecisionMakingSkillsByDoingThisOneSimpleThing
MistakesWereMade(ButNotbyMe):WhyWeJustifyFoolishBeliefs,BadDecisions,
andHurtfulActs
5. Inconsistency-Avoidance Tendency

Werarelydothingsthatareinconsistentwithouridentity,beliefs,andhabits.Tosaveenergy,
weareoftenreluctanttochangeourhabits,especiallybadones.Suchbadhabitsinclude
biasedthinkingpatterns.Thesepatternsleadtocognitiveerrors,limitingourchoiceofactions
inlife.

Quotes

WhenMarleys[ ChristmasCarol]miserableghostsays,IwearthechainsIforgedin
life,heistalkingaboutchainsofhabitthatweretoolighttobefeltbeforethey
becametoostrongtobebroken.Munger

Therarelifethatiswiselylivedhasinitmanygoodhabitsmaintainedandmany
badhabitsavoidedorcured.Munger

Anounceofpreventionisworthapoundofcure. PoorRichardsAlmanack


OnecorollaryofInconsistencyAvoidanceTendencyisthatapersonmakingbig
sacrificesinthecourseofassuminganewidentitywillintensifyhisdevotiontothe
newidentity[i.e.,hazingatfraternities].Munger

Antidotes

Realizethateveryactionyoutakeleadstogoodhabitsorbadhabits .So,
endeavortoconstantlybecreatingnew,positivehabits.

Becarefulaboutthebeliefsyoutakeon. First,findsufficientevidencetodisprove
yourpointfirstbeforebelievinginit.CharlesDarwintrainedhimself,early,to
intensivelyconsideranyevidencetendingtodisconfirmanyhypothesisofhis,moreso
ifhethoughthishypothesiswasaparticularlygoodone.

Findwaystochallengeyourpreconceivedbeliefs. ElonMusk proactivelyseeks
outideasthatchallengehisexistingbeliefs.Athispeak,Einsteinwasagreat
destroyerofhisownideas.
Example

Stanfordprofessor,BJFogg ,isoneoftheworldstopexpertonhabits.Hesharesthatthe
simpleactofflossingonetoothcan leadtomuchbetterhabitsinlife
.Notonlythesmallhabit
minimizestheresistancetowardsnewhabitscausedbyourinconsistencyavoidance
tendencyitbreakstheunproductivecognitivepatternwemighthaveinourlifestyleand
helpsusbuildbigger,betterhabits.

Resources

UnleashYourPotential:HowToChallengeYourAssumptionsAnd
ExpandYourThinking
WednesdayWorkout:TestingYourAssumptions
TinyHabitsMethodology

6. Curiosity Tendency

Mungerarguesthatcuriositynotonlycountersthenegativeeffectsofourpsychological
tendencies,italsoletsusenjoytheprocessoflearningandacquiringknowledge.

Quotes

Manscuriosity,inturn,ismuchstrongerthanthatofhissimianrelatives.Munger

Curiosity,enhancedbythebestofmoderneducation(whichisbydefinitiona
minoritypartinmanyplaces),muchhelpsmantopreventorreducebad
consequencesarisingfromotherpsychologicaltendencies.Thecuriousarealso
providedwithmuchfunandwisdomlongafterformaleducationhasended.
Munger

Example

LateMITprofessor,AmarBose,used insatiablecuriosity
todiveintosubjectslikenuclear
physics,aswellascreatehisaudioequipmentcompanyfromscratch.

Resources

HowtoThinkLikeLeonardodaVinci:SevenStepstoGeniusEveryDay
Curious:TheDesiretoKnowandWhyYourFutureDependsOnIt
7. Kantian Fairness Tendency

CitingKantandhiscategoricalimperative,Mungerarguesthatreciprocalcourtesy isa
societalnorm,atleastinUnitedStates.Whenwearenottreatedfairly,oftenwebecomevery
angryand/orfrustrated.

InafamousPrisonersDilemmaexperiment,whenonepersonfeelsbetrayedbyanother,that
personwillnotactoutofhis/herownimmediateselfinterestinordertopunishtheother
person.

Quotes

[There]is,inmodemhumanculture,alotofcourteousliningupbystrangerssothat
allareservedonafirstcomefirstservedbasis.Munger

Example

Asearlyas15months, babiescanrecognizetheconceptoffairness
whenitcomesto
sharingfood.Inoneofthetasksduringtheresearchstudy,babieswhopreviouslyreactedto
unequalfooddistributionsharedtheirpreferredtoyswithastranger.

Resource

SuperCooperators:Altruism,Evolution,andWhyWeNeedEachOthertoSucceed

8. Envy/Jealousy Tendency

Mungerpointshowoutourevolutionarydesiretoownotherspossessionsleadstoworse
situationslikehatred,fightsandsoon.AbrahamTessers
academicresearch onthe
SelfEvaluationModelcounterintuitivelyshowsthatourselfesteemsuffersandtherefore,feel
themostjealousofotherpeoplewhentheyre:

Closetous(iesibling,friend)
Outcompetingusinareasthatareimportanttous

Quotes

Itisnotgreedthatdrivestheworld,butenvy.WarrenBuffetasquotedbyMunger

Antidotes
 Disarmotherpeoplesjealousyofyou
withvulnerability.

Practicemindfulness whenyoufeeljealousorenviousacceptandappreciateyour
emotions.Youremotionsoftenaretellingyousomethingaboutyourself,andbeing
awareofwhatmessagestheybringcanbringyounewpersonalinsights.

Example

IntheWescoAnnualMeeting(2000),Munger madethefollowingremarkontheimportanceof
beingsatisfiedwithonesownlife:
Here'sonetruththatperhapsyourtypicalinvestment
counselorwoulddisagreewith:ifyou'recomfortablyrichandsomeoneelseisgettingricher
fasterthanyouby,forexample,investinginriskystocks,sowhat
?!Someonewillalways
be
gettingricherfasterthanyou.Thisisnotatragedy.

Resources

ToCreateaRealConnection,ShowVulnerability
BeHappierwithYourLife:6WaystoLetJealousyGuideYou

9. Reciprocation Tendency

Wearewiredtoreciprocate.Ifpeoplegivetous,wefeelweowetheotherperson.Similarto
thefairnesstendency,ifsomeonehurtsus,wefeeltheneedtohurtthemback.

Companiescanusethisapproachto:

Startarelationshipbygivingsomething,evenifitssmall.

Negotiatebyaskingforsomethingbigandunrealisticatfirst,andthenwhenthe
personsaysno,askforsomethingthatissmallerthatistheultimatethingyouwanted
anyway.InanexperimentperformedbyRobertCialdini,thisapproachwasincredibly
effective.

Usethefootinthedoortechnique(a.k.a.,
FranklinEffect)byaskingforsomething
smallthateveryonewillsayyestoandthenincreasethesizesoftheasks.

Quotes

Theautomatictendencyofhumanstoreciprocatebothfavorsanddisfavorshaslong
beennoticedasitisinapes,dogs,andmanylesscognitivelygiftedanimals.The
tendencyfacilitatesgroupcooperationforthebenefitofmembers.Munger

Antidotes

Startanddeveloprelationshipsbyproactivelygiving.Mostpeoplewillreciprocate.

Wiseemployers,therefore,trytoopposereciprocatefavortendenciesofemployees
engagedinpurchasing.Thesimplestantidoteworksbest:Dontletthemacceptany
favorsfromvendors.

Thestandardantidotetoonesoveractivehostilityistotrainoneselftodeferreaction.
AsmysmartfriendTomMurphysofrequentlysays,Youcanalwaystellthemanoff
tomorrow,ifitissuchagoodidea.

Example

JohnCorcoran,anattorneywhoworkedasaWhiteHousespeechwriterat23yearsold,
sharedhowBillClintonwouldnotonlywritehandwrittennotes tofollowupwithcontacts,he
wouldfreelygivehistimetostrangersateventstofulfilltheirvariousrequestslike
autographing.Bygivingfirst,peoplewilltendtoreciprocatewhenyouaskforfavors.

Resources

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

10. Influence-From-Mere-Association Tendency

Weperceivepeopleorthingsdifferentlydependingonwho/whattheyareassociatedwith.
Advertisershavelongunderstoodthis.Theylinktheirproductstothingsthatwilltriggerthe
responsestheywantyoutohave.Thisisalsoknownas classicalconditioning
.

Sometimeswhenpeoplereceiveafavorwhentheyreinpain(poor,sick,etc.),theyassociate
thepersonthatgavethemthefavorwiththepain.Asaresult,thefavorjustreinforcesthe
pain.

Ifwelinkapasteventwherewegotluckytoskillratherthanluck,thenwewillmakepoor
choicesaboutthefuture.

Quotes

Advertisersknowaboutthepowerofmereassociation.Youwontsee Coke
advertisedalongsidesomeaccountofthedeathofachild.Instead,Cokeadspicture
lifeashappierthanreality.Munger

Someofthemostimportantmiscalculationscomefromwhatisaccidentally
associatedwithonespastsuccess,oroneslikingandloving,oronesdislikingand
hatingwhichincludesanaturalhatredforbadnews.Munger

Hatinganddislikingalsocausemiscalculationtriggeredbymereassociation.In
business,Icommonlyseepeopleunderappraiseboththecompetencyandmoralsof
competitorstheydislike.Thisisadangerouspractice,usuallydisguisedbecauseit
occursonasubconsciouslevel.Munger

Antidotes

Carefullyexamineeachpastsuccess,lookingforaccidental,noncausativefactors
associatedwithsuchsuccessthatwilltendtomisleadasoneappraisesoddsimplicit
inaproposednewundertaking.

Lookfordangerousaspectsofthenewundertakingthatwerenotpresentwhenpast
successoccurred.

Dontshootthemessengermakeahabitofwelcomingbadnewstocounterthis
tendency!Alwaystellusthebadnewspromptly.Itisonlythegoodnewsthatcan
wait.commoninjunctionatBerkshire

Example

Bycontinuously
associatingtopathleteswithitsproductsoverdecades,Nikehasbuilta
globalbrandthatistrustedbyconsumers.Ithaslinkedthisfeelingwithitsswooshlogo.

Resource
Don'tShoottheDog!:TheNewArtofTeachingandTraining

11. Pain-Avoiding Psychological Denial

Wetendtodistortfactsforourownpsychologicalcomfort.Thispsychologicaldiscomfortis
knownas cognitivedissonance .

Ifwemakeahabitofcontinuallyavoidinginformationthatispainful,wellnotonlydevelopa
distortedviewofreality,welltrainotherpeoplenottotellusthetruth.

Quotes

Itisnotnecessarytohopeinordertopersevere.WilliamtheSilent


Antidote

Dontresolvecognitivedissonancebydistortingrealityinordertomakeyoufeel
better.Findawaytoalwayskeepyourselfopentothefactsofanysituationsoyou
canmakethemostsoundchoices.

Example

IntheclassicAesopsfable ,thefoxclaimedthatthegrapesweresourafterfailingtogetthem
inordertocopewiththefactthathecouldntreachthem.Areallifecomparisonwouldbethe
cultleaderwho failstopredicttheendoftheworldtimeandagain
andeachtimecomesup
withadifferentexcuse.

Resource

MistakesWereMade(ButNotbyMe):WhyWeJustifyFoolishBeliefs,BadDecisions,and
HurtfulActs

12. Excessive Self-Regard Tendency

Weareoverconfidentthinkingwerebetterthantheaverageperson.Severalstudiesof
selfperception,showthatforanygiventrait,morethan50%ofpeoplethinktheyreabove
averagefromunsophisticatedcomputeruserswhothink theyarecybercrimeexperts,to
HarvardBusinessSchoolstudentswhothinkthat theyarebetterlookingthaneveryoneelse.
Thisisknownasthe EndowmentEffect .Beingoverconfidentcanleadtomanyshortcomings
forexample,overconfidentstudents dosignificantlypoorerontests
.

Theresultofthisisoverappraisingthingsweown,decisionswemake,andpeoplelikeus
underappraisingthingsthatchallengeourselfregard.

Quotes

Mansexcessofselfregardtypicallymakeshimstronglypreferpeoplelikehimself.
Munger.Thisisalsoknownas homophily .

Evenmansminorpossessionstendtobeoverappraised.Onceowned,they
suddenlybecomeworthmoretohimthanhewouldpayiftheywereofferedforsale
tohimandhedidntalreadyownthem.Munger.

[A]manshouldtrytofacethetwosimplefacts:

 Fixablebutunfixedbadperformanceisbadcharacterandtendstocreatemore
ofitselfcausingmoredamagetotheexcusegiverwitheachtoleratedinstance.
Indemandingplaces,likeathleticteamsandGeneralElectric
,youarealmost
suretobediscardedinduecourseifyoukeepgivingexcusesinsteadof
behavingasyoushould.Munger

Antidotes
Excessesofselfregardoftencausebadhiringdecisionsbecauseemployersgrossly
overappraisetheworthoftheirownconclusionsthatrelyonimpressionsin
facetofacecontact.Thecorrectantidotetothissortoffollyistounderweigh
facetofaceimpressionsandoverweightheapplicantspastrecord.Munger

ThemaininstitutionalantidotestothispartoftheTolstoyeffectare:

Offermeritocratic,demandingculture,pluspersonalhandlingmethodsthat
buildupmorale,and
Severanceoftheworstoffenders.Munger

Thebestantidotetofollyfromanexcessofselfregardistoforceyourselftobemore
objectivewhenyouarethinkingaboutyourself,yourfamilyandfriends,yourproperty,
andthevalueofyourpastandfutureactivity.

Ofallformsofusefulpride,perhapsthemostdesirableisajustifiedprideinbeing
trustworthy.Moreover,thetrustworthyman,evenafterallowingfortheinconveniences
ofhischosencourse,ordinarilyhasalifethataveragesoutbetterthanhewouldhave
ifheprovidedlessreliability.Munger

Resources

ManagingOverconfidence
TheWinnerEffect:TheNeuroscienceofSuccessandFailure

13. Over-Optimism Tendency

Wetendtobefoolishlyoptimisticwithoutcalculatingtherisks.Inanticipationofgoodfuture
outcomesandhowmuchcontrolwehaveoverthemwe overestimatehowmuchcontrolwe
haveoverthem .NeuroscientistTaliSharotsresearchsuggeststhattheoptimismbiashas
evolvedtobecomeanintegralpartofthehumanpsyche, regardlessofonesrace,gender
andnationality
.

Twosoberingexamplesareweareoveroptimisticregardinghowfastwecanpayoffour
studentdebt
,orhowwellwecanuse ourdrivingskills
.

Quotes

Whatamanwishes,thatalsowillhebelieve.Demosthenes,themostfamous
Greekorator

Antidotes

Onestandardantidotetofoolishoptimismistrained,habitualuseofthesimple
probabilitymathof
Fermat
and
Pascal,taughtinmyyouthtohighschool
sophomores. Munger

Example

ThelateSteveJobsrefusedsurgeryatfirst
whenhewasfirstdiagnosedwithcancer,
thinkingthathecouldbeattheailmentbyusingalternativemedicinaltreatments,but
noneworkedtohisavail.

Resource

TheOptimismBias:Whywe'rewiredtolookonthebrightside
TheMungerNetworkOfMentalModels(page5)

14. Deprival-Superreaction Tendency

Wetendtointenselyreacttoanyreallossorpotentiallossirrationally
.Thisexplains
infightingthatoccurswithinbureaucracies.

Quotes

Amanordinarilyreactswithirrationalintensitytoevenasmallloss,orthreatened
loss,ofproperty,love,friendship,dominatedterritory,opportunity,status,orany
othervaluedthing.Munger.

Timeandagain,studieshaveshownthatlossandthethreatofitisapowerful
motivationforhumanbeings,from highstakeinternationalpolitics
to
daily
consumptionbehavior .Examplesofhowwefearpotentiallossesaboundinreallife:
losingacointoss,
missingashoppingdeal ,andsoon.

DeprivalSuperreactionTendencyisalsoahugecontributortoruinfromcompulsion
togamble.First,itcausesthegamblertohaveapassiontogetevenoncehehas
sufferedloss,andthepassiongrowswiththeloss.Second,themostaddictveforms
 ofgamblingprovidealotofnearmissesandeachonetriggers
DeprivalSuperreactionTendency.Munger

Antidotes

Oneantidotetointense,deliberatemaintenanceofgroupthinkisanextremeculture
ofcourtesy,keptinplacedespiteideologicaldifferences,likethebehaviorofthe
justicesnowservingonthe U.S.SupremeCourt .
Munger

Anotherantidoteistodeliberatelybringinableandarticulatedisbelieversof
incumbentgroupthink.Successfulcorrectivemeasurestoevilexamplesofgroupthink
maintenancehaveincludedactionslikethatof DerekBok when,aspresidentof
Harvard,hestarteddisapprovingtenureappointmentsproposedbyideologuesat
HarvardLawSchool .
Munger

Oneofthebestantidotestothisfollyisgoodpokerskilllearnedyoung.Theteaching
valueofpokerdemonstratesthatnotalleffectiveteachingoccursonastandard
academicpath.Munger

Resources

LettersfromaStoic
OvercomingtheFearofLoss:5StepstoGetUnstuck

15. Social-Proof Tendency

Wearewiredtomakeahugenumberofdecisionsinourlifebasedpurelyonotherpeoples
actions.Theeffectissostrongthatevenifwearesurroundedbyasmallgroupofpeoplewho
insistthatblueisgreen,thenwellquestionourownreality
.

Entrepreneurswhocreatepublicsocialproofoftheirproduct(i.e.positivecustomerreviews)
getmoresales .

Quotes

WhenwilltheSocialProofTendencybemosteasilytriggered?Heretheansweris
clearfrommanyexperiments:Triggeringmostreadilyoccursinthepresenceof
puzzlementorstress,andparticularlywhenbothexist.Munger

Insocialproof,itnotonlyactionbyothersthatmisleadsbutalsotheirinaction.Inthe
presenceofdoubt,inactionbyothersbecomessocialproofthatinactionistheright
course.Munger

 Insocialproof,itisnotonlyactionbyothersthatmisleadsbutalsotheirinaction.In
thepresenceofdoubt,inactionbyothersbecomessocialproofthatinactionisthe
rightcourse.Thus,theinactionofagreatmanybystandersledtothe deathofKitty
Genoveseinafamousincidentmuchdiscussedinintroductorypsychologycourses.
Munger

Monkeysee,monkeydoAnonymous

Antidotes

Learnhowtoignoretheexamplesfromotherswhentheyarewrong,becausefew
skillsaremoreworthhaving.Munger

BecausebothbadandgoodbehavioraremadecontagiousbySocialProof
Tendency,itishighlyimportantthathumansocieties:

Stopanybadbehaviorbeforeitspreads.
Fosteranddisplayallgoodbehavior.

Example

Restaurantownersshouldespeciallypayattentiontotheimpactofcustomerreviewsontheir
products,becauseaHarvardBusinessSchoolstudypointedoutthat aonestarincreasein
Yelpratingleadstoa59percentincreaseinrevenue
,largelybecause
customerstrustother
customersthemostingeneral .

Resource

Influence:ThePsychologyofPersuasion
Contagious:WhyThingsCatchOn

16. Contrast-Misreaction Tendency

Ourconsciousmindislimited.Therefore,wecantregistereverydetailthatwesee,hear,feel,
taste,andsmellineverymoment.Ourbrainunconsciouslymakeschoicesaboutwhereour
attentionflows.Oneofthewaysthatitmakesthisdecisionisbysuddenchange.Ifweheara
loudsoundallofasudden,ourattentionimmediatelygoesthere.

Thissameprincipleappliestotheworldofvalue.Wedontmeasurethevalueofthingsina
vacuum.Weoftennoticevaluebycontrastingitwithsomethingelse.Retailerstake
advantageofthisbyattachinganartificiallyhighpricetotheirproductandthenprovidinga
significantdiscount.

Quotes

Thestockmarketisfilledwithindividualswhoknowthepriceofeverythingbutthe
valueofnothing.PhillipFisher

Asmallleakwillsinkagreatship.Theutilityoftheaphorismislargeprecisely
becausethebrainsooftenmissesthefunctionalequivalentofasmallleakinagreat
ship.BenFranklin

Cognition,misledbytinychangesinvolvinglowcontrast,willoftenmissatrendthat
isdestiny.Munger

Antidotes

Trainyourselftonoticesmallchangesthatotherpeoplemiss. Thisgivesyouthe
abilitytostopbadchainreactionsbeforetheyspread,andinvest/nurturepositiveones
beforetheyspread.Mostfamously,CharlesDarwintrainedhimselftometiculously
trackverysmallvariationsofanimalfeaturesovermanyyears.Theseobservations
ultimatelyledDarwintotheTheoryofEvolution.

Trainyourselftomakesmallchangestoyourhabits .Makeamicroresolutiona
small,specificmeasurablegoalthatwillkeepyouaccountableonaregularbasis,
withouttriggeringyourInconsistencyAvoidanceTendency.

Examples

Byrunningfiveminutesaday,youcanreducechancesofdyingprematurely
by30%
.

Resources

Mastermind:HowtoThinkLikeSherlockHolmes
HowtoMakeaMicroresolution

17. Stress-Influence Tendency

Somestresshelpsusfocus,buttoomuchdestroysourdecisionmakingcapabilities.
Therefore,wemustlearnhowtomanagestressinsituations,sothatwemakethebest
decisionspossible.

InethicallyquestionableexperimentsperformedbyNobelLaureate,IvanPavlov,wherehe
stressinducednervousbreakdownsindogsandtriedtoreversetheeffects,hefound:

Hecouldclassifydogssoastopredicthoweasilyaparticulardogwouldbreakdown.
Thedogshardesttobreakdownwerealsothehardesttoreturntotheir
prebreakdownstate.
 Anydogcouldbebrokendown.
Hecouldntreverseabreakdownexceptbyreimposingstress.

Quotes

...Theheavyhandedimpositionofstressmightbetheonlyreversalmethodthat
wouldworktoremedyoneoftheworstevilsimaginable:astolenmind.Munger

Antidotes

Listentoyourbody. Whenyoufeelpersistentlyoverwhelmed,takeastepback.

Meditate.
Multipleresearchstudies
haveproventhatmeditationishighlyeffectivein
regulatingouremotions,especiallyourcapacitytocopewithstress,mainlyby
increasingourmindfulnesstowardsnegativeemotions.

Rest,nap,sleep. No,noskimpingyourbrain
needs100%ofitsresttime
.

Resources

Mindfulness:AnEightWeekPlanforFindingPeaceinaFranticWorld
8ReasonsWhyYouShouldDefinitelyTakeThatLunchBreak

18. Availability-Misweighing Tendency

Wetendtooveremphasizeinformationthatisthemostavailableandvividfromour
surroundingsandourmind.Intheacademicworld,thisisknownasthe AvailabilityBias.
Unfortunately,Theeasinessdoesntmeanthattheinformationisthemostusefulone.

Thiscanworktopeoplesbenefitintheworldofpersuasionandmemory.Bypaintingavivid
pictureofsomething,wecanmoreeffectivelyinfluenceothersandkeepideasinourown
memories.

Wheningroupenvironments,simpleexplanationsofcomplexphenomenacanrapidlygain
currencyandspreadeveniftheyrewrong.Thisisknownasthe availabilitycascade .

Quotes

Anideaorafeatisnotworthmoremerelybecauseitiseasilyavailabletoyou.
Munger

WhenImnotnearthegirlIlove,IlovethegirlImnear.FrankSinatra

Antidotes

Trainyourselftobrainstormallpossibilities openlyratherthanjumpingonyour
firstconclusions.Developyour
strategicthinkingabilitiestotacklecomplexproblems.

Useachecklist,orprocedures,tocurbthistendency.

Alwayslookforevidencethatdisprovesyourpoints,andconsistentlydoso.

Getskepticalpeopleonboardorassignadeviladvocateroletosomeoneyoutrust,so
thatyouropinionsarechallengedbydisconfirmingevidence.

Wheninmeetings,letotherpeopletalkfirstsoyoudontbiashowtheyrespond.

Resource

MakingDumbGroupsSmarter

19. Authority-Misinfluence Tendency

Wetrustandrespectleaderstoomuch,evenwhentheymakemistakes.

Wealsotrustleadersinareaswheretheyarenotexperts.Thisisknownasthe HaloEffect
.

Quotes

[Man]isoftendestinedtosuffergreatlywhentheleaderiswrongorwhenhis
leadersideasdontgetthroughproperlyinthebustleoflifeandaremisunderstood.
Munger

Antidotes

[Be]carefulwhomyouappointtopowerbecauseadominantauthorityfigurewilloften
behardtoremove,aidedashewillbebyAuthorityMisinfluenceTendency.Munger

Useachecklistandacriticalmindtocounteroratleastreducetheinfluenceof
authority.

Resource

Influence:ThePsychologyofPersuasion
20. Twaddle Tendency

Peopletendtotalkalotaboutthingstheyrenotanexpertin.Beverycarefulofthesepeople.

Instead,trytosurroundyourselfwithpeoplewhoshowrestraintinsharingtheiropinionsuntil
theyremoreprovenorthoughtthrough.

Quotes

Man,asasocialanimalwhohasthegiftoflanguage,isborntoprattleandtopour
outtwaddlethatdoesmuchdamagewhenseriousworkisbeingattempted.Some
peopleproducecopiousamountsoftwaddleandothersverylittle.Munger

Example

DavidOgilvy,oneofthefoundingfathersinmodernadvertising, hadthistosaywhenit
comestohiringathisagency
:Ourofficesmustalwaysbeheadedbythekindof
peoplewhocommandrespect.Nophonies,zerosorbastards.Hiswisdominhiring
talentswhoupholdprofessionalintegrityintheworktheydoisapowerfulsolutionto
thetwaddletendencya.k.abullshit.

Antidotes

Theprincipaljobofanacademicadministrationistokeepthepeoplewhodont
matterfrominterferingwiththeworkofthepeoplethatdo.
Caltech
engineering
professor

Resources

Managingyourself:TheBossAsHumanShield
AreYouListeningLikeALeader

21. Reason-Respecting Tendency

Beforedoingthings,welovetohavereasons.Therefore,whendelegatingthingstoother
people,besuretosharethereasonswhythetaskisimportant.

Ina
famousstudybyresearcher,EllenLanger,sheshowedthatwhenaskingforafavorfrom
astranger,simplygivingareasonfortherequest,evenifitsartificial,greatlyincreasesthe
oddsofthepersoncomplying.
Quotes

Thereisinman,particularlyoneinanadvancedculture,anaturalloveofaccurate
cognitionandajoyinitsexercise.Munger

Ingeneral,learningismosteasilyassimilatedandusedwhen,lifelong,people
consistentlyhangtheirexperience,actualandvicarious,onalatticeworkoftheory
answeringthequestion:Why?Indeed,thequestionWhy?isasortof Rosettastone
openingupthemajorpotentialityofmentallife.Munger

Unfortunately,ReasonRespectingTendencyissostrongthatevenapersonsgiving
ofmeaninglessorincorrectreasonswillincreasecompliancewithhisordersand
requests.Munger

Antidotes

Keeptrackoftheevidenceforyourvalidbeliefssothatwhenyouexplainittoothers,it
makessense.

Resource

XeroxMindfulnessExperiment

22. Lollapalooza Tendency

LollapaloozaTendencyisthetendencytogetextremeconsequencesfromconfluencesof
psychologicaltendenciesactinginfavorofaparticularoutcome.Althoughitislastedlast
here,Mungercountsitasoneofthemostimportant.

Thistendencyworksinoneoftwoways:

Effectsbolstereachother. InthefamousMilgramexperimentsatStanford,test
subjectsdevolvedintoterriblebehaviorinjustafewdaysasaresultofsixtendencies
beingtriggeredatonce.InMungersexperience,whenyoucombinetwoforces
together,youdontgetsimpleaddition,yougetanuclearexplosion.

Effectscanceleachotherout. Ascompaniesgrow,theygetbenefits(ieeconomies
ofscale)anddisadvantages(iebeauracracy).

Byunderstandingallofthebiases
and howtheyrelatetoeachother,youwillhaveahuge
advantageinyourlife.

Quotes

Tendency#1 Tendency#2 Results

Reciprocation Inconsistency 1. Fulfillmentofpromisesmadeaspartofa

Avoidance bargain,includingloyaltypromisesinmarriage
ceremonies,

2. Correctbehaviorexpectedfrompersons
servingaspriests,shoemakers,physicians,and
allelse.Munger

Inconsistency Deprival Caseswherethereisextremesofideology,whichare

Avoidance Superreaction maintainedwithgreatintensityandwithgreatdislike
towardnonbelievers.

Deprival Inconsistency Formofbusinessfailurewheresomeonegradually

Superreaection Avoidance usesupalltheirgoodassetsinafruitlessattemptto
rescueabigventuregoingbad.

SocialProof Incentives SerpicoSyndrome. Namedtocommemoratethestate

ofaneartotallycorruptNewYorkpolicedivisionjoined
byFrankSerpico.Hewasnearlymurderedbygunfire
becauseofhisresistancetogoingalongwiththe
corruptioninthedivision.Suchcorruptionwasbeing
drivenbysocialproofplusincentives.

SocialProof Envy/Jealousy Onesuchinteractionamusedmyfamilyforyearsas

Tendency + peoplerecalledthetimewhenmycousinRussandI,at
agesthreeandfour,foughtandhowledoverasingle
Deprival surplusshinglewhilesurroundedbyavirtualseaof
Superreaction surplusshingles.

Buttheadultversionsofthisoccasion,boostedby
psychologicaltendenciespreservingideologies,arenot
funnyandcanbringdownwholecivilizations.The
MiddleEastnowpresentsjustsuchathreat.Munger

Quotes

Lifeisjustonedamnrelatednessafteranother.JulianHuxley

EveryonewhohastakenPscyh101knowsthatstressmakesSocialProofTendency
morepowerful.Munger
Example

Acombinationoffactors
causedApplestockpricestogodownbyalmost50%last
year.

Resource

ExamplesOfLollapaloozaEffectInTheRealWorld

Apply The Tendencies To Your Life

OneofMungersbiggestinsightsintopsychologicalbiasesisusingchecklists.Checklists
allowMungertousetherightmodelsattherighttimewhenhesmakingimportantdecisions.

AssharedinChecklistManifesto ,checklistsaredeceivinglypowerful.Theauthor
,
Atul
Gawande,shareshowsimplechecklistsusedinsurgeriessavelives.Avoidablemistakes
happenwhensmartpeoplewhothinktheyknowitalldontusechecklists.

In
SeekingWisdom (294295),
abookfullyendorsedbyCharlieMungerandWarrenBuffett,
thefollowingchecklistisproposedforunderstandingtheimpactofourbiasesonanygiven
decision:

Whatiscausingmetodothis?

Whatisthecontext?

CanIjudgehim?

Whatisinhisselfinteresttodo?

Whatarethepsychologicaltendenciesandshortcutsthatinfluencehimandcancause
misjudgment?

Whataretheconsequences?

WhatsystemwouldIliketohaveiftheroleswerereversed?

Isthistherightsystem?

Two-Track Analysis

AnotherchecklistCharlieusesisTwoTrackanalysis.Itcombinesinsightsfrompsychology,
neuroscienceandeconomicsaboutthenatureofhumanbehavior.Thismodelinstructsthat
whenanalyzinganysituationinwhichdecisionmakingbypeopleisinvolved,whichofcourse
coverseverybusinesssituation,hemustconsidertwotracks:

Howtheywouldactiftheybehavedrationally,accordingtotheirtruebestinterests.

Howtheywouldsuccumbtothepullofanumberofirrationalpsychologicalbiasesthat
seemtobeprogrammedintothehumanbrain.

Books For Overcoming Limiting Psychological Biases

MistakesWere Thinking,Fast Psychologyof Yes!50Scientific

Made andSlow Intelligence WaystoBe
(ButNotbyMe) Analysis Persuasive

ChecklistManifesto TheLogicOf DeepSimplicity BreakingBias

Failure


Influence ThinkingIn CharliesAlmanack SeekingWisdom

Systems

Credits

ThankyouIanChewfortheresearchassistance.