The Psychology of Human Misjudgement, 1995 talk by Charlie Munger
March 2, 2013 6:25 AM Subscribe
Charlie Munger (prev) gave an oft referenced talk at Harvard in 1995. Here's the full audio.
Munger titled the speech "Twenty Four Standard Causes of Human Misjudgement".
Warren Buffett calls Charlie Munger his partner. Even before he was Vice Chairman at Berkshire Hathaway, he was known as a canny investor. Mr. Munger speaks about the framework for decision making, the factors contributing to misjudgements and behavioral economics in a folksy downhome way.
A collection of Munger's speeches was collected by Peter D. Kaufman as Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger. Although they are longtime friends and partners, Munger is hardly a carbon copy of Buffett: Munger is known to be a Republican, whereas Buffett has generally supported Democrats.
Quote:Warren has always been very open about what he’s learned, and I share that ethos. My personal behavior model is Lord Keynes: I wanted to get rich so I could be independent, and so I could do other things like give talks on the intersection of psychology and economics. I didn’t want to turn it into a total obsession.
Speech in pdf
Munger references Influence: The Psychology of Persuasion by R.Cialdini
Munger titled the speech "Twenty Four Standard Causes of Human Misjudgement".
Warren Buffett calls Charlie Munger his partner. Even before he was Vice Chairman at Berkshire Hathaway, he was known as a canny investor. Mr. Munger speaks about the framework for decision making, the factors contributing to misjudgements and behavioral economics in a folksy downhome way.
A collection of Munger's speeches was collected by Peter D. Kaufman as Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger. Although they are longtime friends and partners, Munger is hardly a carbon copy of Buffett: Munger is known to be a Republican, whereas Buffett has generally supported Democrats.
Quote:Warren has always been very open about what he’s learned, and I share that ethos. My personal behavior model is Lord Keynes: I wanted to get rich so I could be independent, and so I could do other things like give talks on the intersection of psychology and economics. I didn’t want to turn it into a total obsession.
Speech in pdf
Munger references Influence: The Psychology of Persuasion by R.Cialdini
We are all one legged men in an ass kicking contest.
posted by Blasdelb at 1:43 PM on March 2, 2013 [3 favorites]
posted by Blasdelb at 1:43 PM on March 2, 2013 [3 favorites]
Thanks ... Something I've often thought long and hard about.
Favorited and looking forward to absorbing it fully when I return from Amsterdam.
posted by ZenMasterThis at 5:19 PM on March 2, 2013
Favorited and looking forward to absorbing it fully when I return from Amsterdam.
posted by ZenMasterThis at 5:19 PM on March 2, 2013
Great talk. Worth it just to hear a reputed republican trashing Milton Friedman. If anyone doesn't have time to listen, I took some messy notes. Didn't quite get all 24 causes but I got close.
24 Standard Causes of Human Misjudgement
1. Underrecognition of the power of reinforcement/incentives
"Man With A Hammer Syndrome"
2. Simple psychological denial
3. Incentive-caused bias (both in your own mind and also of trusted advisor--where it causes agency costs) (avoid cognitive dissonance)
4. (AND THIS IS A SUPERPOWER BIAS)-- Bias from consistency and commitment tendency (particularly biased toward expressed and hard-won conclusions)
6. Bias from pavlovian association -- e.g. coke wants to associated
--persian messenger syndrome--still exists: bad for the messenger
--raising price of alternative product often raises sales because we think higher priced is better
==bias from skinnerian conditioning--skinner created superstitious pidgeons
==accounting system here is really important--loose accounting standards are just inviting bad behavior
7. Bias from reciprocation tendency (including the tendency when on a roll to act as other people expect)
--it is so easy to be a patsy for compliance practicitioners
--ask for a lot and then back off: take juvenile deliquents to the zoo 2 days? ok how about just one?
8. Bias from overinfluence from social proof (from conclusions of others)
"better to be roughly right than precisely wrong" ~ Keynes
9. Bias from contrast-caused distortions in perception, sensation, and cognition
--contrast scale and scale with quantum effects
--magician remove watch
--cognition mimics sensation--people are manipulating you all day long
--e.g. marriage
--frog in boiling water
10. Bias from over-influence from authority
11. Bias from deprival super-reaction syndrome
12. Bias from chemical dependency--distort
13. Bias from gambling compulsion--variable reinforcement and Skinner (gambling example--but not only reason gambling is popular--people love to pick their own numbers)
14. Liking distortion
15. Disliking distortion
Man with a hammer syndrome and Skinner: 4-5 elementary psychological tendencies combine to create this syndrome
("you can't really buy your thinking done/gun???")
In the last analysis every profession is a [subconscious psychological tendency] against the laity
16. Bias from the non-mathematical nature of the brain and it's tendency to get probability wrong
--whole heuristic of misjudgement--availability [e.g. of coke] changes behavior
--it isn't the lack of availability distort your judgement
--train yourself to run down this list--these tendencies make things unavailable because you jump to new conclusions
--john goodfriend example: has trusted employee
-evil behavior spread
17. Bias from overinfluence from extra-vivid evidence
18. Mental confusion caused by information not arrayed in the mind and theory structures creating sound generalization developed in response to the question why. Also misinfluence from information that apparently but not really answers the question why also failure to obtain deserved influence by not properly explaining why.
--"you've got to array facts on theory structures answering the question why"
--if you want to pursuade somebody you have to tell them why (show people incentives for them)
19. Other normal limitations of sensation, memory, cognition, and knowledge
22. Stress induced mental changes, small and large, temporary and permanent.
--Pavlov's dogs had total reversal of their conditioning under stress
23. Other common mental ilnesses and declines including the tendency to loss ability through disuse.
24. Mental and organizational confusion from "Say-Something Syndrome": honey bees do incoherent dances when the nectar is straight up because they don't have genetic program to describe that direction
--have to make sure people with "say something syndrome" don't affect decisions
Questions he addresses without being asked:
What happens when these tendencies combine: the combination greatly increases the power to change behavior
E.g.
-Alcoholics Anonymous
-Milgrim experiment
-contrast principle, commitment and consistency tendency
"lalapalooza effects"
"what you should search for in life is the combination"
-McDonnell Douglas airliner evacuation disaster--they did a disasterous test twice: decided to do it, authorities told you to do it, incentive-caused bias, etc...
-Open-outcry auction
-Institution of the board of directors
Isn't this list improperly tautological: Yes. There is overlap, etc...
What good is knowing these things?
-Tendencies are partly good (mostly good than bad and that's why they are programmed into us by broad evolution)
-But this thought system is very useful in spreading good thinking and good conduct
-Use of simulators in pilot training
-Clinical training in medical schools. "watch one, do one, teach one"
-Rules of the US constitutional convention --totally secret, no votes until the final vote
-Use of "granny's rule": you don't get the ice cream unless you eat your carrots--do the unpleasant and important first
-HBS's emphasis on decision trees -- looking at elementary probability
-Postmortems at Johnson & Johnson
-Darwin paid always extra attention to the disconfirming evidence
What special-knowledge problems lie buried in the list?
-Paradox
"damn the paradoxes"
the more people learn about it, the more attenuated the effects of the list get
--the manipulation still works even though you know if you do it
How should the best of psych and econ interrelate?
-two views: thermodynamics model--some economists like thermodynamics model
---thermodynamics model is overstrained--knowledge from these different soft sciences has to be reconciled--behavioral economists are bending econ rules
---equinoxes: the world would be much easier for climatologists if there wasn't a little wobble in the earth's rotation in the axis. in many ways psych may just add a little wobble to econ theories.
Et cetera:
"the lord is subtle but not malicious"
Menger wanted to get rich so he could be independent
people are trained to follow the ideas of others in academia
"all reality has to respect all other reality"
posted by ropeladder at 12:23 PM on March 3, 2013 [7 favorites]
24 Standard Causes of Human Misjudgement
1. Underrecognition of the power of reinforcement/incentives
"Man With A Hammer Syndrome"
2. Simple psychological denial
3. Incentive-caused bias (both in your own mind and also of trusted advisor--where it causes agency costs) (avoid cognitive dissonance)
4. (AND THIS IS A SUPERPOWER BIAS)-- Bias from consistency and commitment tendency (particularly biased toward expressed and hard-won conclusions)
6. Bias from pavlovian association -- e.g. coke wants to associated
--persian messenger syndrome--still exists: bad for the messenger
--raising price of alternative product often raises sales because we think higher priced is better
==bias from skinnerian conditioning--skinner created superstitious pidgeons
==accounting system here is really important--loose accounting standards are just inviting bad behavior
7. Bias from reciprocation tendency (including the tendency when on a roll to act as other people expect)
--it is so easy to be a patsy for compliance practicitioners
--ask for a lot and then back off: take juvenile deliquents to the zoo 2 days? ok how about just one?
8. Bias from overinfluence from social proof (from conclusions of others)
"better to be roughly right than precisely wrong" ~ Keynes
9. Bias from contrast-caused distortions in perception, sensation, and cognition
--contrast scale and scale with quantum effects
--magician remove watch
--cognition mimics sensation--people are manipulating you all day long
--e.g. marriage
--frog in boiling water
10. Bias from over-influence from authority
11. Bias from deprival super-reaction syndrome
12. Bias from chemical dependency--distort
13. Bias from gambling compulsion--variable reinforcement and Skinner (gambling example--but not only reason gambling is popular--people love to pick their own numbers)
14. Liking distortion
15. Disliking distortion
Man with a hammer syndrome and Skinner: 4-5 elementary psychological tendencies combine to create this syndrome
("you can't really buy your thinking done/gun???")
In the last analysis every profession is a [subconscious psychological tendency] against the laity
16. Bias from the non-mathematical nature of the brain and it's tendency to get probability wrong
--whole heuristic of misjudgement--availability [e.g. of coke] changes behavior
--it isn't the lack of availability distort your judgement
--train yourself to run down this list--these tendencies make things unavailable because you jump to new conclusions
--john goodfriend example: has trusted employee
-evil behavior spread
17. Bias from overinfluence from extra-vivid evidence
18. Mental confusion caused by information not arrayed in the mind and theory structures creating sound generalization developed in response to the question why. Also misinfluence from information that apparently but not really answers the question why also failure to obtain deserved influence by not properly explaining why.
--"you've got to array facts on theory structures answering the question why"
--if you want to pursuade somebody you have to tell them why (show people incentives for them)
19. Other normal limitations of sensation, memory, cognition, and knowledge
22. Stress induced mental changes, small and large, temporary and permanent.
--Pavlov's dogs had total reversal of their conditioning under stress
23. Other common mental ilnesses and declines including the tendency to loss ability through disuse.
24. Mental and organizational confusion from "Say-Something Syndrome": honey bees do incoherent dances when the nectar is straight up because they don't have genetic program to describe that direction
--have to make sure people with "say something syndrome" don't affect decisions
Questions he addresses without being asked:
What happens when these tendencies combine: the combination greatly increases the power to change behavior
E.g.
-Alcoholics Anonymous
-Milgrim experiment
-contrast principle, commitment and consistency tendency
"lalapalooza effects"
"what you should search for in life is the combination"
-McDonnell Douglas airliner evacuation disaster--they did a disasterous test twice: decided to do it, authorities told you to do it, incentive-caused bias, etc...
-Open-outcry auction
-Institution of the board of directors
Isn't this list improperly tautological: Yes. There is overlap, etc...
What good is knowing these things?
-Tendencies are partly good (mostly good than bad and that's why they are programmed into us by broad evolution)
-But this thought system is very useful in spreading good thinking and good conduct
-Use of simulators in pilot training
-Clinical training in medical schools. "watch one, do one, teach one"
-Rules of the US constitutional convention --totally secret, no votes until the final vote
-Use of "granny's rule": you don't get the ice cream unless you eat your carrots--do the unpleasant and important first
-HBS's emphasis on decision trees -- looking at elementary probability
-Postmortems at Johnson & Johnson
-Darwin paid always extra attention to the disconfirming evidence
What special-knowledge problems lie buried in the list?
-Paradox
"damn the paradoxes"
the more people learn about it, the more attenuated the effects of the list get
--the manipulation still works even though you know if you do it
How should the best of psych and econ interrelate?
-two views: thermodynamics model--some economists like thermodynamics model
---thermodynamics model is overstrained--knowledge from these different soft sciences has to be reconciled--behavioral economists are bending econ rules
---equinoxes: the world would be much easier for climatologists if there wasn't a little wobble in the earth's rotation in the axis. in many ways psych may just add a little wobble to econ theories.
Et cetera:
"the lord is subtle but not malicious"
Menger wanted to get rich so he could be independent
people are trained to follow the ideas of others in academia
"all reality has to respect all other reality"
posted by ropeladder at 12:23 PM on March 3, 2013 [7 favorites]
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