The Psychology of Human Misjudgment
Lollapalooza and more Munger-ism.
In 1995, Charles T. Munger gave a speech at Harvard University, titled "The Psychology of Human Misjudgment".
In this talk, Charlie Munger spoke about the framework for decision making and the factors contributing to misjudgements - 100% of what he said at that point is applicable even today.
As the world mourns the death of legendary Charlie Munger (his philosophies, i.e. Mungerism have shaped a lot of my decision-making skills), here is sharing big ideas from his talk at Harvard as a tribute to his long-term thinking which effectively made him what he was, i.e. Charlie Munger!
Each idea explores a different psychological tendency that influences human behavior and decision-making.
Reward and Punishment Super response Tendency: This principle highlights the extreme influence of rewards and punishments on human behavior.
People often react disproportionately to incentives, leading to irrational decisions and actions. This tendency underscores the power of both positive reinforcement and negative consequences in shaping behavior.
Liking/Loving Tendency: This concept illustrates how affection and emotional attachment can significantly skew our judgments and decisions.
Our preferences, opinions, and choices are often biased by our feelings of fondness towards people, objects, or ideas, leading to partiality and favoritism.
Disliking/Hating Tendency: In contrast to the Liking/Loving Tendency, this principle deals with the strong impact of aversion and animosity on our decisions.
Our dislikes and hatreds can cloud our judgment, leading to biased evaluations and choices.
Doubt-Avoidance Tendency: This tendency describes the human inclination to make quick decisions to escape the discomfort of uncertainty.
People prefer a flawed decision over the ambiguity and anxiety that comes with doubt, often leading to hasty and ill-considered choices.
Inconsistency-Avoidance Tendency: Humans have a strong desire to remain consistent with their beliefs and past decisions.
This tendency leads to resistance to change and an aversion to admitting mistakes or reevaluating past choices.
Curiosity Tendency: This principle recognizes the innate human urge to know and understand, driving exploration, learning, and the pursuit of new information. Curiosity plays a vital role in innovation and problem-solving.
Also read: 50 Charlie Munger quotes that are funny..and hit you hard.
Kantian Fairness Tendency: Derived from Immanuel Kant’s philosophy, this tendency refers to the human inclination towards fair and just treatment in interactions. It underscores the importance of fairness in maintaining social harmony and cooperation.
Envy/Jealousy Tendency: Envy and jealousy are powerful emotions that can distort judgment and lead to destructive behavior. This principle examines the negative impact of these emotions on personal relationships and decision-making.
Reciprocation Tendency: This concept describes the human tendency to feel obliged to return favors, gifts, or other forms of generosity. It is a fundamental aspect of social interaction and cooperation.
Influence-from-Mere-Association Tendency: This tendency explains how associations, even if irrelevant or irrational, can influence our perceptions and decisions. It demonstrates the power of branding, stereotypes, and associations in shaping our judgments.
Simple Pain-Avoiding Psychological Denial: This principle highlights the human tendency to deny reality as a defense mechanism against unpleasant truths or experiences. It shows how denial can lead to avoidance of necessary actions or decisions.
Excessive Self-Regard Tendency: This tendency illustrates the common human trait of overestimating one’s abilities and contributions. It can lead to overconfidence and an inflated sense of self-importance.
Overoptimism Tendency: This concept deals with the tendency of individuals to be overly optimistic about outcomes, often underestimating risks and overestimating chances of success.
Deprival-Super reaction Tendency: This principle describes the intense reaction people have to being deprived of something they consider theirs. It explains the strong aversion to loss and the extreme measures taken to avoid or recover losses.
Social-Proof Tendency: This tendency explains how individuals look to others for cues on how to think, feel, and act, especially in uncertain situations. It highlights the influence of social norms and peer pressure on behavior and decision-making.
Contrast-Mis reaction Tendency: This tendency highlights how our perceptions are heavily influenced by contrast. Small differences can seem larger or smaller than they are depending on what they are compared with.
Stress-Influence Tendency: Under stress, cognition can be significantly impaired, leading to poor decision-making. This principle emphasizes the impact of psychological and physical stress on judgment and behavior.
Availability-Mis weighing Tendency: Decisions are influenced by what is immediately available in memory, leading to biased judgments based on recent information or vivid memories.
Use-It-or-Lose-It Tendency: Skills and knowledge deteriorate when they are not regularly used. This principle underscores the importance of continual learning and practice.
Drug-Mis influence Tendency: The influence of drugs, including alcohol and other substances, can severely impair judgment and decision-making.
Senescence-Mis influence Tendency: Aging can affect cognition and behavior, leading to changes in judgment and decision-making capabilities.
Authority-Mis influence Tendency: This principle describes the tendency to be overly influenced by authority, leading to acceptance of and compliance with the opinions and orders of perceived authorities without sufficient scrutiny.
Twaddle Tendency: This is the tendency to focus on or even obsess over irrelevant details or nonsensical information, leading to unproductive or misguided actions.
Reason-Respecting Tendency: People have a natural inclination to want reasons for what they are asked to do. When provided with a reason, even if it's not particularly valid, compliance increases.
Lollapalooza Tendency: This is the convergence of multiple psychological tendencies acting in concert, which can lead to extremely powerful outcomes, often far exceeding the sum of their individual effects.