Charles Thomas Munger is an American business magnate, lawyer, investor, and philanthropist. He is Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment corporation chaired by Warren Buffett; in this capacity, Buffett describes Charlie Munger as "my partner." Munger served as chairman of Wesco Financial Corporation from 1984 through 2011 (Wesco was approximately 80%-owned by Berkshire-Hathaway during that time). He is also the chairman of the Daily Journal Corporation, based in Los Angeles, California, and a director of Costco Wholesale Corporation.
Apart from Albert Camus' Myth of Sisyphus, no essay morphed my thinking as much as this. And this one is a heavy one. It's a truly truly heavy read. For 21 pages, this essay has more profound content in it than whole books about psychology. I could just list out what is the content. But that would be a sheer copy and paste from some other website (a social proof bias). So let's talk how it changed things for me -
1. I gave up on obsessing about my ex knowing that I was destroying myself in the process (liking bias) 2. I realised that people after 30 want to stick to their profession after 35 because of a resounding effect of the commitment consistency bias. 3. I have started being much more objective about my reactions to people since I am able to recognise my liking or disliking bias. 4. I am planning my travel plans with way more depth than before recognising how much I used to rely on social proof for such things. 5. I am way in control of my head and how I react to failure because I see where I am being subjected to the deprival superreaction tendency. ....and a lot more.
So this essay is hyper frontal about the mistakes we commit, the biases we live with, and how sheer recognition of these behaviours in ourselves might just help us do what we always wished we did.
This entire review has been hidden because of spoilers.
Reward & Punishment Super-Response Tendency: Never underestimate the power incentives and disincentives have on motivating people to complete a task.
Liking/Loving Tendency: People ignore the faults of other people, products or companies that they love, like or admire.
Dislike/ Hating Tendency: Humans ignore the virtues and views put forth by those things or persons they dislike.
Doubt – Avoidance Tendency: If unsure about a decision humans will try to remove any doubt by making an ill-informed, quick decision.
Inconsistency – Avoidance Tendency: The human brain conserves energy by being reluctant to change, which is a way of avoiding inconsistency.
Curiosity Tendency: Curiosity has been one of the main drivers in human progress throughout history.
Kantian fairness Tendency: People expect a certain level of fairness and will act irrationally to punish those who are not fair.
Reciprocation tendency: In reciprocation tendency, we tend to want to return the favor when someone helps us.
Envy/ Jealousy Tendency: Envy/jealousy comes from the desire to have a quality, possession or attribute belonging to someone else.
Influence–From–Mere Association Tendency: People can easily be manipulated by mere association through advertising, quality perception, celebrity, etc.
Simple, Pain – Avoiding: Psychological Denial Humans have a habit of distorting facts, until they become bearable for our own views.
Excessive Self-Regard Tendency: People have a tendency to believe they are above average. This is where overconfidence comes from.
Over-Optimism Tendency: Over-optimism bias usually shows that excess of optimism is the normal human condition.
Deprival–Superreaction Tendency: Deprival-Superreaction refers to people’s tendency to strongly prefer avoiding losses to acquiring gains.
Social-Proof Tendency: Social-Proof Tendency is an automatic tendency to think and act as others around think and act.
Contrast- Misreaction Tendency: Humans tend to make judgments based on comparison instead of evaluating each situation on its own.
Stress- Influence Tendency: When stress and adrenaline levels are high humans tend to produce faster and more extreme reactions.
Availability- Misweighing Tendency: The human brain tends to overweigh the value of a fact, idea or object when it is easily available.
Use-it-or-Lose It Tendency: Your skills over time weaken with disuse. Simply put, if you don’t use them, you lose them.
Drug-Misinfluence Tendency: Humans have a tendency to be strongly influenced by drugs which can lead to moral breakdown and massive denial.
Senescence-Misinfluence Tendency: Certain skills and abilities diminish with age. Continuous thinking and learning helps to slow the decay.
Authority-Misinfluence Tendency: People have the tendency to follow orders, especially when given by an authority figure.
Twaddle Tendency: People have the tendency to twaddle or spend too much time on things that don’t matter or aren’t important.
Reason – Respecting Tendency: It is possible to get people to act against their best interest if they are given a reason even if it’s silly.
Lollapalooza Tendency: All the previous tendencies interact with each other and when combined have an exponential effect.
These are notes of a lecture Munger gave on 'The Psychology of Human Misjudgement', in which he talks about how psychology impacts decision-making, especially in the context of finance. Those familiar (with the work of Daniel Kahneman for example) won't find too much new here, but nonetheless it is a good quick introduction to the topic. That it comes from a prominent investor is perhaps the best part – proof that understanding psychology can have real monetary benefits in investing and trading.
This is actually an hour and a half long speech that has more wisdom per minute than anywhere else! It's a good speech but hard to grasp fully in the first go but overall there's something in it for everyone :)
I'm endlessly fascinated by why we think how we think and understanding the cognitive bias in each of us is the first step towards identifying automatic responses and thinking clearer afterwards.
Charlie Munger’s speech turned book summarises the wisdom he wants to pass down generations regarding irrational patterns in human behaviour. He identified 25 psychology-based tendencies in human interactions that tend to explain common human misjudgments.
Charlie was way ahead of his time in identifying these human irrationalities and connecting psychology with business in a visionary speech delivered to Harvard students in 1995. This field has gained extreme prominence today and is widely studied in behavioural economics and finance.
The book is a great introduction to the topic, however I would recommend anyone looking for deeper, more well organised knowledge to look further in the scientific fields that have grown since the speech was given. This impressive collection should be seen, as the author intended, as a checklist for these human tendencies to help us understand our decision making better, a purpose it fulfils very well.
This is a pretty interesting account of 25 psychological tendencies, examples of which we account in our everyday life. Although the tendencies are accurately named and explained in depth, often their importance is emphasized through pointing out that these things are missed out on during psychology lecturers, which is true, psychology texts do keep repeating the same experiments at length to explain phenomenon that don't even matter alot (meaning they have little to no significance) however, what I've noticed from my own observation is that you can enlist any number of tendencies, notice exceptions, come up with new ones (caution: have evidence to support your claims!), But human behaviour is vast (yes, that's a pretty lame and obvious term to use ) and so, while this text does bring to our attention the patterns of behaviour we miss and helps us smartly label certain behaviours, it's missing scientific evidence (because those tendencies are supported through historical accounts or in some cases age old experiments). And he has very smartly spoken highly of himself and his friends as to how they have avoided getting trapped by those tendencies. Perhaps I would have liked either more support either through personal examples or scientific evidence. But, it's still a 4/5 coz it's interest.
Walking around with a checklist of the 25 tendencies Munger discusses in this lecture would be nothing short of a superpower. This is a talk I will revisit often in an effort to avoid the misjudgments humans so often make. Now I need to read Poor Charlie’s Almanack.
A little white paper on human misjudgement. While some points resonated well with my limited life experience, others were accepted with a hint of skepticism. Still, I appreciate these words of wisdom (warning: authority-misinfluence tendency)
On one hand, it's a super accessible, phenomenal summary of decades of research in cognitive biases and behavioral finance. On the other hand, it's a witty and hilarious commentary on human nature. Munger (one of the greatest investors of all time) makes the subject sound almost like stand-up comedy. You will learn a lot and laugh at the same time. A must.
An easy read of a speech that was given. Tells us more about Charlie Munger's rational thought process, than the exhaustive list of psychology. His examples make it a particularly informative read and I have unearthed a few errors in my thought process that he has cited.
- A List of Masterful Quotations - Invert: Understand good judgment by collecting instances of bad judgement Incentives are superpowers: "If you would persuade, appeal to interest and not to reason" "Repeat behavior that works": Prompt rewards work better than delayed rewards Love admirable persons and ideas with a special intensity has a huge advantage in life. Granny's rule: Children eat carrots before they get dessert. First force yourself daily to do unpleasant and necessary tasks before rewarding with pleasant tasks Few people can list a lot of bad habits that they have eliminated Even in physics the radically new ideas are seldom really accepted by the old guard. At his peak, Einstein was a great destroyer of his own ideas, but an older Einstein never accepted the full implications of quantum mechanics. See one, do one, the teach one It is not greed that drives the world, but envy Train oneself to defer reactions Turn-the-other-cheek behavior will lead us to ruin Keep your eyes wide open before marriage and half shut thereafter One spouse usually overappraises the other spouse: endowment effect Underweigh face-to-face impressions and overweigh the applicant's past record Force yourself to be more objective Fixable but unfixed bad performance is bad character Pride in being trustworthy is Justifiable People react badly to things being taken away, even if they don't have them Simple probability math is an antidote to overoptimism and confidence in your own gut feeling. Good poker skill learned young Most addictive forms of gambling provide a lot of near misses Learn how to ignore the examples from others when they are wrong Superrespect by young people for their peers, rather than for parents or other adults --> parents manipulating the quality of the peers Inaction by others becomes social proof Highly important that human societies stop any bad behavior before it spreads and foster and display all good behavior. Mind overweighs what is easily available Underweight extra vivid evidence, while less vivid evidence should be overweighed Continuous thinking and learning, done with joy, can somewhat help delay mental decay Wise man engages in practice of all his useful, rarely used skills - create a checklist of your skills Be clear in communications Who was to do What, Where, When, and Why Psychological knowledge improves persuasive power J&J rules make everybody revisit old acquisitions, comparing predictions with outcomes
- Invert -
This entire review has been hidden because of spoilers.
The book is information dense. It is impressive how many examples are given of the various psychological pitfalls.
However, it is not an easy read. Charles Munger is clearly a business executive and not a writer, and the book is written with this sense of urgency that another executive reading the book might show, who has only 60 seconds per pitfall. Also, in trying to be original, and dismissive of academic psychology, he also makes stuff harder to understand than necessary by using some very mouth filling names for the different errors in judgement. For example, the easy to grasp term ‘rationalization’ is now “inconsistency avoidance tendency” and “mob effect” is now “social proof tendency”.
Many layman psychology books will spend a whole book to cover one topic, and even a lay reader like me would rather have a book like this to read, which errs towards an executive pitch, than one which beats home a single message, to death.
Es una manera muy concisa de ver al mundo y operar sobre él.
Por ser una persona mayor, utilizo palabras con las que no estaba familiarizado, me sirvió para ampliar mi vocabulario.
Me sorprendió la cantidad de ejemplos e historia que uso para ilustrar sus ideas.
Hubo secciones que no las entendí del todo, pero la idea general de que el comportamiento humano está lleno de puntos ciegos me quedo claro.
Entiendo que esta forma que tenemos los humanos de comportarnos tiene un objetivo biológico fuerte y estas características nos ayudan a seguir sobreviviendo sobre la tierra.
2021: This the text of a talk Munger gave in 1995. if you have read subsequent texts of behavioral economics and decision making literature is like it me, now that it is part of standard b-school teachings, this will be familiar. But Munger was ahead of his time. Academie literature writers/text. Daniel Kanhaman, Levitt, predictably irrational, freakonomics.
=> 1st rule of mgt, get the incentives right => To avoid bad hiring decisions, underweigh face- to-face impressions and overweigh the applicant’s past record. => One of the principal jobs of a leader is to keep the people who don’t matter from interfering with the work of the people that do => To ensure company success you have to tell Who is to do What, Where, When, and Why
This entire review has been hidden because of spoilers.
Munger is a pioneer in behavioral finance probably before the term was even invented. This serves as an introduction to the area, much work has been done in the field since this was written. This should be seen as a checklist of biases and tendencies in order to help make better decisions.
Twenty-five common thinking errors that you ought to know. Short and crisp checklist. It is hard to thoroughly grasp everything said in it in one go. However, even a single read should help you in independent critical thinking and in avoiding herd mentality.
Good book, this is very short less than 60 pages.. the is collection of various psychological tendencies that human being's show. Some of them are clearly explained with examples. some of the them can be easily understood.
Parts were difficult to understand and one will find many overlaps and reiterations. It also warranted reader to know about to certain personalities and associated stories of them.