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.

Liking/Loving

3.

4.

Reward&
Punishment

6.

5.

Disliking/Hating Doubt/Avoidance

7.

8.

9.

Inconsistency
Avoidance

10.

Curiosity

KantianFairness

Envy/Jealousy

Reciprocation

InfluenceFrom
MereAssociation

11.

12.

13.

14.

15.

PainAvoiding
Denial

Excessive
SelfRegard

OverOptimism

Deprival
Superreaction

SocialProof

16.

17.

Contrast
Misreaction

StressInfluence

21.

Reason
Respecting

22.

18.

Availability
Misweighing

Lollapalooza

19.

20.

Authority
Misinfluence

Twaddle

23.

24.

TakeAction

Resources

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
Palin
andviceversa.

Inoneresearchstudy,babieswereshownto
favorresearchersofthesamerace
.

Antidotes
Beaware
ofhowlikingorlovingothersdistortsyourlogic.

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
Realizethat
everyactionyoutakeleadstogoodhabitsorbadhabits
.So,
endeavortoconstantlybecreatingnew,positivehabits.

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

Findwaystochallengeyourpreconceivedbeliefs.
ElonMusk
proactivelyseeks
out
ideasthatchallengehisexistingbeliefs.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,Mungerarguesthat
reciprocalcourtesy
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

 Disarm
otherpeoplesjealousyofyou
withvulnerability.

Practicemindfulness
whenyoufeeljealousorenviousacceptandappreciateyour
emotions.Youremotionsoftenaretellingyousomethingaboutyourself,andbeing
awareofwhatmessagestheybringcanbringyounewpersonalinsights.

Example
IntheWescoAnnualMeeting(2000),Munger
madethefollowingremark
ontheimportanceof
beingsatisfiedwithonesownlife:
Here'sonetruththatperhapsyourtypicalinvestment
counselorwoulddisagreewith:ifyou'recomfortablyrichandsomeoneelseisgettingricher
fasterthanyouby,forexample,investinginriskystocks,
sowhat
?!Someonewill
always
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,
sharedhowBillClintonwouldnotonly
writehandwrittennotes
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
associatingtopathleteswithitsproducts
overdecades,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,likeathleticteamsand
GeneralElectric
,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
ThelateSteveJobs
refusedsurgeryatfirst
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,then
wellquestionourownreality
.

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
deathof
Kitty
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

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

Trainyourselfto
makesmallchangestoyourhabits
.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
strategicthinking
abilitiestotacklecomplexproblems.

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
famousstudy
byresearcher,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
Avoidance

Inconsistency
Avoidance

Deprival
Caseswherethereisextremesofideology,whichare
Superreaction maintainedwithgreatintensityandwithgreatdislike
towardnonbelievers.

Deprival
Superreaection

Inconsistency
Avoidance

Formofbusinessfailurewheresomeonegradually
usesupalltheirgoodassetsinafruitlessattemptto
rescueabigventuregoingbad.

SocialProof

Incentives

SerpicoSyndrome.
Namedtocommemoratethestate
ofaneartotallycorruptNewYorkpolicedivisionjoined
byFrankSerpico.Hewasnearlymurderedbygunfire
becauseofhisresistancetogoingalongwiththe
corruptioninthedivision.Suchcorruptionwasbeing
drivenbysocialproofplusincentives.

SocialProof
Tendency

Envy/Jealousy
+

Deprival
Superreaction

Onesuchinteractionamusedmyfamilyforyearsas
peoplerecalledthetimewhenmycousinRussandI,at
agesthreeandfour,foughtandhowledoverasingle
surplusshinglewhilesurroundedbyavirtualseaof
surplusshingles.

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

1. Fulfillmentofpromisesmadeaspartofa
bargain,includingloyaltypromisesinmarriage
ceremonies,

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

Quotes

Lifeisjustonedamnrelatednessafteranother.JulianHuxley

EveryonewhohastakenPscyh101knowsthatstressmakesSocialProofTendency
morepowerful.Munger

Example
Acombinationoffactors
causedApplestockpricestogodownbyalmost50%last
year.

Resource

ExamplesOfLollapaloozaEffectInTheRealWorld

Apply The Tendencies To Your Life

OneofMungersbiggestinsightsintopsychologicalbiasesisusingchecklists.Checklists
allowMungertousetherightmodelsattherighttimewhenhesmakingimportantdecisions.

Assharedin
ChecklistManifesto
,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
Made
(ButNotbyMe)

Thinking,Fast
andSlow

Psychologyof
Intelligence
Analysis

ChecklistManifesto

Yes!50Scientific
WaystoBe
Persuasive

TheLogicOf
Failure

DeepSimplicity

BreakingBias

Influence

ThinkingIn
Systems

CharliesAlmanack

Credits

ThankyouIanChewfortheresearchassistance.

SeekingWisdom