The psychology of human misjudgment

Charlie Munger gave a speech in 1995 about the most common biases, called “The psychology of human misjudgment“.

These things influence people beliefs and decisions:

Behavior and beliefs

  • Incentives. Incentives have a huge influence on people.
  • Consistency. People tend to stay consistent with their previous actions, even in face of evidence of being wrong.
  • Curiosity. People tend to be curious in various ways.
  • Wish. People tend to believe what they want to be true.
  • Lollapalooza. Extreme behavior that results from the conjunction of several other tendencies.

Relation to others

  • Like and dislike. People tend to see the virtues of people they like and agree with them. And the reverse.
  • Association. People extend the emotion experienced to the context in which they experienced it. They can become hostile to the messenger of bad news.
  • Authority. People tend to obey blindly to authority.
  • Reason. People tend to comply more easily if you tell them why they should, even if the reason is shallow.
  • Herd. People tend to act and think like their peers.
  • Fair. People tend to treat others as they would like to be treated.
  • Reciprocation. People tend to do to others what others do to them.
  • Envy. People tend to be jealous of what others have.

Pain protection

  • Denial. People tend to deny painful facts.
  • Self-serving. People tend to have a higher opinion of themselves and their assets compared to alternatives.

Buying and selling

  • Contrast. People tend to focus on the best offer relative to the most recent they saw, not all the offers there are. They tend to buy an overpriced option after seeing a couple of insanely priced options.
  • Uncertainty. People dislike uncertainty and tend to decide fast.
  • Stress. People under stress will be more influenced by social proof and uncertainty.
  • Loss. People tend to experience more pain from a loss than from a gain of the same thing.

Memory

  • Availability. People tend to put more importance on things that are more vivid in their memory.
  • Use. People tend to lose the skills they don’t use regularly. But fluent skills are lost slower and get back quicker.

Cognitive impairments

  • Drugs. People can make poor decisions when on drugs.
  • Senescence. People tend to have cognitive decline with age.
  • Twaddle. People have the tendency to say stupid things and be incompetent.