Showing posts from August, 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