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 blindly obey people with authority.
- Reason. People tend to comply more easily if you tell them why they should, even if the reason is shallow.
- Social-Proof. People tend to act and think like their peers.
- Fairness. 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.
- Denial. People tend to deny painful facts.
- Self-serving. People tend to have a higher opinion of themselves and what they have compared to identical other people and things
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 insane-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.
- 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.
- 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.