Charlie Munger's Psychology of Human Misjudgment - Part 2

Jun 4, 2014 -

Psychology of Human Misjudgment - Cause of Irrational Behaviors 

It's amazing how many of these psychological tricks are played out on a day to day basis. All this time I thought I was rational, but like most everyone else my actions and decisions have been swayed by these psychological phenomenons.

Here are the other twelve of the twenty-four causes of irrational behaviors. 

13) Bias from Substance Abuse 

A chemically dependent individual is in denial of their alcoholism and addictions. Drugs change chemicals in your brain, which can ultimately affect judgment.

14) Variable Reinforcement Can Enforce Behaviors

Near misses of three 'bars' on the slot machine will get you to keep putting money into the machine because you feel as if you've been deprived of a win. If you are rewarded sometimes and not others, you'll have that rewarded behavior pounded into you time after time. Furthermore, the moment you feel you have committed to something you feel like it has to be good. For example, if you pick numbers for a lottery, the moment you pick them you get extra validity that you feel like you can win. The odds have not changed since you picked your number, but what has changed is that you've committed.

15) Tendency to Like Oneself, One's Kind, and Own Ideas and Structures

This is a very strong subconscious psychological tendency. You like yourself and your ideas and when other people validate them you agree with them. You are attracted to those who are similar to you and this is good, but also bad. This means you can be misled and not appropriately learn from someone disliked.   

16) Human brains are Non-Mathematical in Nature.

We have a tendency to use crude heuristics and generalizations to compare and contrast information, which can lead to putting more weight on information that is conveniently available. As a result, we will misdirect our thinking tendencies. The solution is to train yourself to run down a list logically instead of jumping on information that is available.

17) Extra Vivid Information Distorts Reality

Being overly influenced by extra vivid information can sometimes result in skepticism. Have you ever played two truths and a lie and your lie was too vivid that people picked it out? Charlie Munger had a chance to buy 1,500 shares of a company that would've made him $30M. But the person convincing him to buy it described the deal in such vivid detail, Charlie was skeptical. In reality, the situation was foolproof. But swayed by the extra vivid information, Charlie turned down the offer and lost out on $30M.

18) Mental confusion Caused By Information Not Arrayed in the Mind and Theory Structures

Purely memorizing information for a test that involves application will not help you pass the test. If you want to convince someone of something you have to explain the "why". Just remember the "why".

19) Normal Limitation of Sensation, Memory, Cognition, and Knowledge

Not knowing and remembering everything limits what we can factor into our decision making process.

20) Stress-Induced Mental Changes Whether Temporary or Permanent 

Everyone is susceptible to stress-induced changes. On the golf course by yourself, you will not feel the pressure to sink a five foot putt. Picture yourself on the 18th hole of a major tournament, throw in a crowd of 10,000, and the fact that if you miss this putt you will lose the tournament by one stroke. Without a doubt you will start to feel stressed. Even Olympic and professional athletes crack under pressure. Those who are able to overcome such mental induce changes usually prevail.

21) Common Mental Illnesses and Declines

Nature is such that if you don't use it then you will lose it. Our bodies and minds work towards efficiency. Like a muscle, if we do not work at it or build it up, the mind will deteriorate or regress. Inevitably, as we age our bodies and minds will regress, but exercise will keep it strong for a long time.

22) Say-Something Syndrome

People behavior irrationally in organizations because they feel the need to say something in a meeting or discussion, but they do not know what to say. As a result, they try to communicate something just for the sake of communicating something.

23) Change Actions to Fulfill a Role 

You should act your age. Have you heard that before? The moment you hear that you perk up and start to act more mature. You are basically acting as other expect whether or not that is rational or irrational.

24) Emotional Appeals Can Led to Irrational Behaviors

I once met a girl who sold to me the story of a tragic childhood and an unfortunate life. My instinct was to help her and give her what she needed. I would go out of my way to make sure she was happy and take her to places she had not been before. After a couple months, I realized that I had been played and she was actually well off and her life was not as tragic as she made it seem.

Check out Part I  of Charlie Munger's Psychology of Human Misjudgment.
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