Search CDOQ

Saturday, August 16, 2008

The Psychology of Human Misjudgment

Charlie Munger is one of my heroes. After attending the last Berkshire Hathaway shareholder meeting, I read a book on Charlie Munger-Poor Charlie's Almanack. It is a fantastic book. I could not put it down until I finished it. In the last chapter, Charlie summarizes 25 human psychology-based tendencies while generally useful, often mislead. In this post, I will summarize the tendencies for you to become better decision makers and to help others around you.

1. Reward and Punishment Superresponse Tendency

People, in general, underestimate the power of incentives. Ben Franklin said, "If you would persuade, appeal to interest and not to reason." Also, prompt rewards work much better than delayed rewards in changing and maintaining behavior. Incentives are superpowers.

One of the most important consequences of incentive superpower is " incentive-caused bias." A man has acculturated nature making him a pretty decent fellow and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior. So, fear professional advice when it is good for the advisor.

Dread, and avoid as much as you can, rewarding people for what can be easily faked.

Bad behavior is intensely habit-forming when it is rewarded.

Mark Twain's cat, after a bad experience with a hot stove, never again sat on a hot stove, or a cold stove either. Punishments, of course, also strongly influence behavior and cognition, although not so flexibly and wonderfully as rewards. George Washington hanged farm-boy deserters forty feet high as an example to others who might contemplate desertion.

2. Liking/Loving Tendency

A newly hatched baby goose is programmed, through the economy of its genetic program, to "love"and follow the first creature that is nice to it, which is almost always its mother. But, if the mother goose is not present right after the hatching and a man is there instead, the gosling will "love" and follow the man, who becomes a soft substitute mother. Somewhat similarly, a newly arrived human is "born to like and love.

One of the practical consequences of Liking/Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend

1) to ignore faults, of and comply with wishes of, the object of his affection
2) to favor people, products, and actions merely associated with the object of his affection
3) to distort other facts to facilitate love

A man who is so constructed that he loves admirable persons and ideas with a special intensity has a huge advantage in life.

3. Disliking/Hating Tendency

Politics is the art of marshaling hatreds.

Disliking/Hating Tendency also acts a conditioning device that makes the disliker/hater tend to

1) ignore virtues in the object of dislike
2) dislike people, products and actions merely associated with the object of dislike
3) distort other facts to facilitate hatred

4. Doubt-Avoidance Tendency

The brain of a main is programmed with a tendency to quickly remove doubt by reaching some decision.

Behavior to counter this tendency is enforced by judges and jurors by forced delay in decision making.

Once one has recognized that man has a strong Doubt-Avoidance Tendency, it is logical to believe that at least some leaps of religious faith are greatly boosted by this tendency.

Doubt-Avoidance Tendency is usually triggered by a combination of puzzlement and stress. Both these factors naturally occur in facing religious issues. Thus, the natural state of most men is in some form of religion. And, this is what we observe.

5. Inconsistency-Avoidance Tendency

The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance. We see this in all human habits constructive and destructive. Few people can list a lot of bad habits they have eliminated. Chains of bad habits are too light to be felt before they become too strong to be broken.

Charles Darwin, trained himself, early, to intensively consider any evidence tending to disconfirm any hypothesis of his, more so if he thought his hypothesis was a particularly good one.

Ben Franklin said, "an ounce of prevention is worth a pound of cure."

Also tending to be maintained in place by the anti-change tendency of the brain are one's previous conclusions, human loyalties, reputational identity, commitments, accepted role in civilization, etc.

New ideas are not accepted because they are inconsistent with the old ideas in place. The human mind works a lot like the human egg. When one sperm gets into human egg, there's an automatic shut-off device that bars any other sperm from getting in. The human mind tends strongly toward the same sort of result.

6. Curiosity Tendency

In advance human civilizations, culture greatly increased the effectiveness of curiosity in advancing knowledge. Curiosity helps man to prevent or reduce bad consequences arising from other psychological tendencies.

7. Kantian Fairness Tendency

Kant was famous for this "categorical imperative, " a sort of "golden rule" that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody.

It is interesting how the world's slavery was pretty well abolished during the last three centuries after being tolerated for a great many previous centuries during which it coexisted with the world's major religions. Katain Fairness Tendency may be a major contributor to this result.

8. Envy/Jealousy Tendency

Sibling jealousy is clearly very strong and usually greater in children than adults. It is often stronger than jealousy directed at strangers.

Warren Buffett said, "It is not greed that drives the world, but envy."

There is a reason that salaries are not discussed in work place.

9. Reciprocity Tendency

The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme, as it is in apes, monkeys, dogs, and many less cognitively gifted animals. The tendency clearly facilitates group cooperation for the benefit of members.

Wise employers try to oppose reciprocate-favor tendencies of employees engaged in purchasing. Sam Walton agreed with this idea of absolute prohibition. He wouldn't let purchasing agents accept so much as a hot dog from a vendor. Given the subconscious level at which much Reciprocity Tendency operates, this policy of Walton was profoundly correct.

Feeling of guilt has caused a wide-spread human misery. The most plausible cause is the mental conflict triggered in one direction by reciprocate-favor tendency and in the opposite direction by reward superresponse tendency pushing one to enjoy one hundred percent of some good thing.

10. Influence-from-Mere-Association Tendency

Responsive behavior creating a new habit, is directly triggered by rewards previously bestowed.

Even association that appears to be trivial, if carefully planned, can have extreme and peculiar effects on purchasers of products. The target purchaser of shoe polish may like pretty girls and so he chooses the polish with the pretty girl on the can or the one with the pretty girl in the last ad for shoe polish that he saw.

To avoid being misled by mere association of some fact with past success, use this memory clue. Think of Napoleon and Hitler when they invaded Russia after using their armies with much success elsewhere. Recognize the causative and non-causative factors for past success and look for dangerous aspects of the new undertaking that were not present when past success is occurred.

Ben Franklin said, "Keep your eyes wide open before marriage and half shut thereafter."

Another common bad effect from the mere association of a person and a hated outcome is displayed in "Persian Messenger Syndrome." Ancient Persians actually killed some messengers whose sole fault was that they brought home truthful bad news, say, of a battle lost. This syndrome is still alive and well today.

Influence-from-Mere-Association Tendency often has a shocking effect that helps swamp the normal tendency to return favor for favor. Sometimes, when one receives a favor, his condition is unpleasant, due to poverty, sickness, subjugation, or something else. In addition, the favor may trigger an envy-driven dislike for the person who was in so favorable a state that he could easily be a favor giver. Under such circumstances, the favor receiver, prompted partly by mere association of the favor giver with past pain, will not only dislike the man who helped him but also try to injure him.

A final serious clump of bad thinking caused by mere association lies in the common use of classification stereotypes. Because Pete knows that Joe is ninety years old and most ninety-year-old persons don't think very well, Pete appraises old Joe's as a thinking Klutz even if old Joe still thinks very well.

11. Simple, Pain-Avoiding Psychological Denial

The tendency's most extreme outcomes are usually mixed up with love, death, and chemical dependency. For example, an otherwise perfectly normal mother who never believes that her son died in war.

One should stay far away from any conduct at all likely to drift into chemical dependency.

12. Excessive Self-Regard Tendency

Ninety percent of Swedish drivers judge themselves to be above average.

Men over appraise their own possessions (spouse, children, gadgets). This phenomenon is called the "endowment effect." And all man's decisions are suddenly regarded by him as better than would have been the case just before he made them.

State Lotteries take advantage of man's irrational love of self-picked numbers (odds are same as picking random numbers and much against the player), modern man buys more lottery tickets than he otherwise would have, with each purchase foolish.

Excesses of self-regard often cause bad hiring decisions because employers grossly over appraise the worth of their own conclusions that rely on impressions in face-to-face contact. The correct antidote to this soft of folly is to under-weigh face-to-face impressions and overweigh the applicant's past record.

According to Tolstoy, the worst criminals don't appraise themselves as all that bad. They come to believe either (1) that they didn't commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and become what they become.

A man should try to face two simple facts: (1) fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to excuse giver with each tolerated instance, and (2) in demanding places like athletic teams and General Electric, you are almost sure to be discarded in due course if you keep giving excuses instead of behaving as you should.

13. Overoptimism Tendency

About three centuries before the birth of Christ, Demosthenes, the most famous Greek orator, said, "what a man wishes, that also will be believe."

One standard antidote of foolish optimism is trained, habitual use of simple probability math of Fermat and Pascal, taught in high schools. The mental rules of thumb that evolution gives you to deal with risk are not adequate. They resemble the dysfunctional golf grip you would have if you relied on a grip driven by evolution instead of golf lessons.

14. Deprival-Superreaction Tendency

The quantity of man's pleasure from a ten-dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss. That is, the loss seems to hurt much more than the gain seems.

In displaying Deprival-Superreaction Tendency, man frequently incurs disadvantages by misframing his problems. He will often compare what is near instead of what really matters. For instance, a man with $10M in his brokerage account will often be extremely irritated by accidental loss of $100 out of $300 in his wallet.

Deprival Superreaction Tendency often protects ideological or religious views by triggering dislike and hatred directed toward vocal non-believers. When the vocal critic is a former believer, hostility is often boosted both by (1) a concept of betrayal that triggers additional Deprival-Superreaction Tendency because a colleague is lost and (2) fears that conflicting views will have extra persuasive power when they come from a former colleague.

Deprival Superreaction Tendency is also a huge contributor to ruin from compulsion to gamble. First, it causes the gambler to have a passion to get even once he has suffered loss, and the passion grows with the loss. Second, the most addictive forms of gambling provide a lot of near misses and each one triggers Deprival Superreaction Tendency.

15. Social-Proof Tendency

Social-Proof Tendency is an automatic tendency of man to think and act as he sees others around him thinking and acting.

If one oil company foolishly buys a mine, other oil companies often quickly join in buying mines.

Triggering for this tendency most readily occurs in the presence of puzzlement or stress, and particularly when both exist.

"Serpico Syndrome" is named to commemorate the state of a near-totally corrupt NY police division joined by Frank Serpico. He was then nearly murdered by gunfire because of his resistance to going along with the corruption in the division. Such corruption was being driven by social proof plus incentives, the combination that creates Serpico Syndrome.

In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course.

In advertising and sales promotion, Social Proof Tendency is about as strong a factor as one could imagine. "Monkey see, monkey do" is the old phrase that reminds one of how strongly John will often wish to do something, or have something, just because Joes does or has it.

Learn how to ignore the examples from others when they are wrong, because few skill are more worth having.

16. Contrast-Misreaction Tendency

Because the nervous system of man does not manually measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in other senses. Morever, as perception goes, so goes cognition. The result is man's Contrast-Misreaction Tendency.

For example, a man's buying an overpriced $1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of a $65,000 car. Large scale damages done by this tendency often ruin lives as when a wonderful women marries a man who would be judged satisfactory only in comparison to her parents. Or as when a man takes wife number two who would be appraised as all right only in comparison to wife number one.

A frog tossed into very hot water would jump out, but that the same frog would end up dying if placed in room-temperature water that was later heated at very slow rate. Many businesses die in the same manner. Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny.

Ben Franklin said, " A small leak will sink a great ship." The utility of the aphorism is large precisely because the brain so often misses the functional equivalent of a small leak in a great ship.

17. Stress-Influence Tendency

Sudden stress, for instance from a threat, will cause a rush of adrenaline in the human body, prompting faster and more extreme reaction.

Very little is known about non-depressive mental breakdowns influenced by heavy stress. Russian scientist, Pavlov, became world-famous by working out mere-association responses in dogs, initially salivating dogs-so much so that changes in behavior triggered by mere-association, like those caused by much modern advertisement, are today often said to come from "Pavlovian" conditioning.

In his experiments with dogs, Pavlov found:

1) that he could classify dogs so as to predict how easily a particular dog would breakdown
2) that the dogs hardest to break down were also the hardest to return to their pre-breakdown state
3) that any dog could be broken down
4) that he couldn't reverse a breakdown except by reimposing stress

The same could be said for humans.

One of the modern cognition reversals in which a person's love of his parents suddenly becomes hate, as new love has been shifted suddenly to a cult can be explained by the person going through extreme stress .

18. Availability-Misweighing Tendency

Man's imperfect, limited capacity brain easily drifts into working with what's easily available to it.

The main antidote to miscues from Availability-Misweighing Tendency often involve procedures, including use of checklists, which are almost always helpful.

One consequence of this tendency is that extra-vivid evidence being so memorable and thus more available in cognition, should often consciously be underweighed while less vivid evidence should be overweighed.

An idea or a fact is not worth more merely because it is easily available to you.

19. Use-It-or-Lose-It Tendency

Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and, there fore, the number of skills he retains, he will naturally drift into error from a man with a hammer tendency ("to a man with a hammer, every problem looks like a nail"). His learning capacity will also shrink as he creates gaps in latticework of theory he needs as a framework for understanding new experience. It is also essential for a thinking man to assemble his skills into a checklist he routinely uses. Any other mode of operation will cause him to miss much that is important.

Skills of high order can only be maintained only with daily practice.

If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come back faster when refreshed with new learning. These are not minor advantages and a wise man engaged in learning some important skill will not stop until he is really fluent in it.

20. Drug-Misinfluence Tendency

This tendency's destructive power is widely known to be intense, with frequent tragic consequences for cognition and the outcome of life.

21. Senescence-Misinfluence Tendency

With advanced-age, there comes a natural cognitive decay, differing among individuals in the earliness of its arrival and the speed of its progression.

Continuous thinking and learning, done with joy, can somewhat help delay what is inevitable.

22. Authority-Misinfluence Tendency

Human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of the man.

Some of the misinfluences are amusing. A physician left a written order for a nurse treating an earache, as follows: "Two drops, twice a day, 'r. ear." The nurse then directed the patient to turn over and put the ear drops in his anus.

Milgram Experiment showed how far authority figures could lead ordinary people into gross misbehavior. Think of Hitler's influence on ordinary people.

23. Twaddle Tendency

Man, as a social animal who has the gift of language is born to prattle and to pour out twaddle that does much damage when serious work is being attempted.

A famous Caltech professor said, "the principle job of an academic is is to keep the people who don't matter from interfering with the work of people that do."

24. Reason-Respecting Tendency

There is in man, particularly one in an advanced culture, a natural love of accurate cognition and a joy in its exercise. This accounts for the widespread popularity of puzzles and games.

This tendency makes man especially prone to learn well when would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired belief ex cathedra with no reasons given.

Carl Braun, who deigned oil refineries with spectacular skill and integrity, had a very simple rule, one of man in his large, Teutonic company: You had to tell Who was to do What, Where, When, and Why. And if you wrote a communication leaving out your explanation of why the addressee was to do what was ordered. Braun was likely to fire you because Braun well knew that ideas got through best when reasons for the ides were meticulously laid out.

"Why?" is a sort of Rosetta stone opening up the major potentiality of mental life.

Unfortunately, Reason-Respecting Tendency is so strong that even a person's giving of meaningless or incorrect reasons will increase compliance with his orders and requests.

25. Lollapalooza Tendency-The Tendency to get extreme consequences from confluences of psychological tendencies acting in favor of a particular outcome

This tendency dominates life. It accounts for the extreme result in Milgram experiment and the extreme success of some cults that hve stumbled through practice evolution into bringing pressure from many psychological tendencies to bear at the same time on conversion targets. The targets vary in susceptibility, like the dogs Pavlov worked with in his old age, but some minds that are targeted simply snap into zombiedom under cult pressure. Indeed, that in one cult's name for the conversion phenomenon: snapping.

The psychology departments in universities have to do a better job of teaching these 25 tendencies.

Throughout reading the book, Charlie's thoughts reminded me of Complex Systems principles. I think he intuitively knows Complex Systems because of his multidisciplinary approach to problem solving. To learn more about Complex Systems, please visit