24 Standard Causes of Human Misjudgment
CHARLIE MUNGER ON THE PSYCHOLOGY OF HUMAN MISJUDGMENT
1. First: Under-recognition of the power of what psychologists call
'reinforcement' and economists call 'incentives.'
Well you can say, "Everybody knows that." Well I think I've been in the top
5% of my age cohort all my life in understanding the power of incentives,
and all my life I've underestimated it. And never a year passes but I get
some surprise that pushes my limit a little farther.
One of my favorite cases about the power of incentives is the Federal
Express case. The heart and soul of the integrity of the system is that all
the packages have to be shifted rapidly in one central location each night.
And the system has no integrity if the whole shift can't be done fast. And
Federal Express had one hell of a time getting the thing to work. And they
tried moral suasion, they tried everything in the world, and finally
somebody got the happy thought that they were paying the night shift by the
hour, and that maybe if they paid them by the shift, the system would work
better. And lo and behold, that solution worked.
Early in the history of Xerox, Joe Wilson, who was then in the government,
had to go back to Xerox because he couldn't understand how their better, new
machine was selling so poorly in relation to their older and inferior
machine. Of course when he got there he found out that the commission
arrangement with the salesmen gave a tremendous incentive to the inferior
machine.
And here at Harvard, in the shadow of B.F. Skinner -- there was a man who
really was into reinforcement as a powerful thought, and, you know,
Skinner's lost his reputation in a lot of places, but if you were to analyze
the entire history of experimental science at Harvard, he'd be in the top
handful. His experiments were very ingenious, the results were
counter-intuitive, and they were important. It is not given to experimental
science to do better. What gummed up Skinner's reputation is that he
developed a case of what I always call man-with-a-hammer syndrome: to the
man with a hammer, every problem tends to look pretty much like a nail. And
Skinner had one of the more extreme cases in the history of Academia, and
this syndrome doesn't exempt bright people. It's just a man with a
hammer...and Skinner is an extreme example of that. And later, as I go down
my list, let's go back and try and figure out why people, like Skinner, get
man-with-a-hammer syndrome.
Incidentally, when I was at the Harvard Law School there was a professor,
naturally at Yale, who was derisively discussed at Harvard, and they used to
say, "Poor old Blanchard. He thinks declaratory judgments will cure cancer."
And that's the way Skinner got. And not only that, he was literary, and he
scorned opponents who had any different way of thinking or thought anything
else was important. This is not a way to make a lasting reputation if the
other people turn out to also be doing something important.
2. My second factor is simple psychological denial.
This first really hit me between the eyes when a friend of our family had a
super-athlete, super-student son who flew off a carrier in the north
Atlantic and never came back, and his mother, who was a very sane woman,
just never believed that he was dead. And, of course, if you turn on the
television, you'll find the mothers of the most obvious criminals that man
could ever diagnose, and they all think their sons are innocent. That's
simple psychological denial. The reality is too painful to bear, so you just
distort it until it's bearable. We all do that to some extent, and it's a
common psychological misjudgment that causes terrible problems.
3. Third: incentive-cause bias, both in one's own mind and that of ones
trusted advisor, where it creates what economists call 'agency costs.'
Here, my early experience was a doctor who sent bushel baskets full of
normal gall bladders down to the pathology lab in the leading hospital in
Lincoln, Nebraska. And with that quality control for which community
hospitals are famous, about five years after he should've been removed from
the staff, he was. And one of the old doctors who participated in the
removal was also a family friend, and I asked him: I said, "Tell me, did he
think, 'Here's a way for me to exercise my talents'" -- this guy was very
skilled technically-- "'and make a high living by doing a few maimings and
murders every year, along with some frauds?'" And he said, "Hell no,
Charlie. He thought that the gall bladder was the source of all medical
evil, and if you really love your patients, you couldn't get that organ out
rapidly enough."
Now that's an extreme case, but in lesser strength, it's present in every
profession and in every human being. And it causes perfectly terrible
behavior. If you take sales presentations and brokers of commercial real
estate and businesses... I'm 70 years old, I've never seen one I thought was
even within hailing distance of objective truth. If you want to talk about
the power of incentives and the power of rationalized, terrible behavior:
after the Defense Department had had enough experience with cost-plus
percentage of cost contracts, the reaction of our republic was to make it a
crime for the federal government to write one, and not only a crime, but a
felony.
And by the way, the government's right, but a lot of the way the world is
run, including most law firms and a lot of other places, they've still got a
cost-plus percentage of cost system. And human nature, with its version of
what I call 'incentive-caused bias,' causes this terrible abuse. And many of
the people who are doing it you would be glad to have married into your
family compared to what you're otherwise going to get. [Laughter]
Now there are huge implications from the fact that the human mind is put
together this way, and that is that people who create things like cash
registers, which make most [dishonest] behavior hard, are some of the
effective saints of our civilization. And the cash register was a great
moral instrument when it was created. And Patterson knew that, by the way.
He had a little store, and the people were stealing him blind and never made
any money, and people sold him a couple of cash registers and it went to
profit immediately. And, of course, he closed the store and went into the
cash register business...
And so this is a huge, important thing. If you read the psychology texts,
you will find that if they're 1,000 pages long, there's one sentence.
Somehow incentive-caused bias has escaped the standard survey course in
psychology.
4. Fourth, and this is a superpower in error-causing psychological tendency:
bias from consistency and commitment tendency, including the tendency to
avoid or promptly resolve cognitive dissonance. Includes the
self-confirmation tendency of all conclusions, particularly expressed
conclusions, and with a special persistence for conclusions that are
hard-won.
Well what I'm saying here is that the human mind is a lot like the human
egg, and the human egg has a shut-off device. When one sperm gets in, it
shuts down so the next one can't get in. The human mind has a big tendency
of the same sort. And here again, it doesn't just catch ordinary mortals; it
catches the deans of physics. According to Max Planck, the really
innovative, important new physics was never really accepted by the old
guard. Instead a new guard came along that was less brain-blocked by its
previous conclusions. And if Max Planck's crowd had this consistency and
commitment tendency that kept their old inclusions intact in spite of
disconfirming evidence, you can imagine what the crowd that you and I are
part of behaves like. And of course, if you make a public disclosure of your
conclusion, you're pounding it into your own head. Many of these students
that are screaming at us, you know, they aren't convincing us, but they're
forming mental change for themselves, because what they're shouting out [is]
what they're pounding in. And I think educational institutions that create a
climate where too much of that goes on are...in a fundamental sense, they're
irresponsible institutions. It's very important to not put your brain in
chains too young by what you shout out.
And all these things like painful qualifying and initiation rituals pound in
your commitments and your ideas. The Chinese brainwashing system, which was
for war prisoners, was way better than anybody else's. They maneuvered
people into making tiny little commitments and declarations, and then they'd
slowly build. That worked way better than torture.
5. Fifth: bias from Pavlovian association, misconstruing past correlation as
a reliable basis for decision-making.
I never took a course in psychology, or economics either for that matter,
but I did learn about Pavlov in high school biology. And the way they taught
it, you know, so the dog salivated when the bell rang. So what? Nobody made
the least effort to tie that to the wide world. Well the truth of the matter
is that Pavlovian association is an enormously powerful psychological force
in the daily life of all of us. And, indeed, in economics we wouldn't have
money without the role of so-called secondary reinforcement, which is a pure
psychological phenomenon demonstrated in the laboratory. Practically...I'd
say 3/4 of advertising works on pure Pavlov. Think how association, pure
association, works. Take Coca-Cola company (we're the biggest share-holder).
They want to be associated with every wonderful image: heroics in the
Olympics, wonderful music, you name it. They don't want to be associated
with presidents' funerals and so-forth. When have you seen a Coca-Cola
ad...and the association really works.
And all these psychological tendencies work largely or entirely on a
subconscious level, which makes them very insidious. Now you've got Persian
messenger syndrome. The Persians really did kill the messenger who brought
the bad news. You think that is dead? I mean you should've seen Bill Paley
in his last 20 years. [Paley was the former owner, chairman and CEO of CBS;
click here to read his bio.] He didn't hear one damn thing he didn't want to
hear. People knew that it was bad for the messenger to bring Bill Paley
things he didn't want to hear. Well that means that the leader gets in a
cocoon of unreality, and this is a great big enterprise, and boy, did he
make some dumb decisions in the last 20 years.
And now the Persian messenger syndrome is alive and well. I saw, some years
ago, Arco and Exxon arguing over a few hundred millions of ambiguity in
their North Slope treaties before a superior court judge in Texas, with
armies of lawyers and experts on each side. Now this is a Mad Hatter's tea
party: two engineering-style companies can't resolve some ambiguity without
spending tens of millions of dollars in some Texas superior court? In my
opinion what happens is that nobody wants to bring the bad news to the
executives up the line. But here's a few hundred million dollars you thought
you had that you don't. And it's much safer to act like the Persian
messenger who goes away to hide rather than bring home the news of the
battle lost.
Talking about economics, you get a very interesting phenomenon that I've
seen over and over again in a long life. You've got two products; suppose
they're complex, technical products. Now you'd think, under the laws of
economics, that if product A costs X, if product Y costs X minus something,
it will sell better than if it sells at X plus something, but that's not so.
In many cases when you raise the price of the alternative products, it'll
get a larger market share than it would when you make it lower than your
competitor's product. That's because the bell, a Pavlovian bell -- I mean
ordinarily there's a correlation between price and value -- then you have an
information inefficiency. And so when you raise the price, the sales go up
relative to your competitor. That happens again and again and again. It's a
pure Pavlovian phenomenon. You can say, "Well, the economists have figured
this sort of thing out when they started talking about information
inefficiencies," but that was fairly late in economics that they found such
an obvious thing. And, of course, most of them don't ask what causes the
information inefficiencies.
Well one of the things that causes it is pure old Pavlov and his dog. Now
you've got bios from Skinnerian association: operant conditioning, you know,
where you give the dog a reward and pound in the behavior that preceded the
dog's getting the award. And, of course, Skinner was able to create
superstitious pigeons by having the rewards come by accident with certain
occurrences, and, of course, we all know people who are the human
equivalents of superstitious pigeons. That's a very powerful phenomenon.
And, of course, operant conditioning really works. I mean the people in the
center who think that operant conditioning is important are very much right,
it's just that Skinner overdid it a little.
Where you see in business just perfectly horrible results from
psychologically-rooted tendencies is in accounting. If you take
Westinghouse, which blew, what, two or three billion dollars pre-tax at
least loaning developers to build hotels, and virtually 100% loans? Now you
say any idiot knows that if there's one thing you don't like it's a
developer, and another you don't like it's a hotel. And to make a 100% loan
to a developer who's going to build a hotel... [Laughter] But this guy, he
probably was an engineer or something, and he didn't take psychology any
more than I did, and he got out there in the hands of these salesmen
operating under their version of incentive-caused bias, where any damned way
of getting Westinghouse to do it was considered normal business, and they
just blew it.
That would never have been possible if the accounting system hadn't been
such but for the initial phase of every transaction it showed wonderful
financial results. So people who have loose accounting standards are just
inviting perfectly horrible behavior in other people. And it's a sin, it's
an absolute sin. If you carry bushel baskets full of money through the
ghetto, and made it easy to steal, that would be a considerable human sin,
because you'd be causing a lot of bad behavior, and the bad behavior would
spread. Similarly an institution that gets sloppy accounting commits a real
human sin, and it's also a dumb way to do business, as Westinghouse has so
wonderfully proved.
Oddly enough nobody mentions, at least nobody I've seen, what happened with
Joe Jett and Kidder Peabody. The truth of the matter is the accounting
system was such that by punching a few buttons, the Joe Jetts of the world
could show profits, and profits that showed up in things that resulted in
rewards and esteem and every other thing... Well the Joe Jetts are always
with us, and they're not really to blame, in my judgment at least. But that
bastard who created that foolish accounting system who, so far as I know,
has not been flayed alive, ought to be.
6. Sixth: bias from reciprocation tendency, including the tendency of one on
a roll to act as other persons expect.
Well here, again, Cialdini does a magnificent job at this, and you're all
going to be given a copy of Cialdini's book. And if you have half as much
sense as I think you do, you will immediately order copies for all of your
children and several of your friends. You will never make a better
investment.
It is so easy to be a patsy for what he calls the compliance practitioners
of this life. At any rate, reciprocation tendency is a very, very powerful
phenomenon, and Cialdini demonstrated this by running around a campus, and
he asked people to take juvenile delinquents to the zoo. And it was a
campus, and so one in six actually agreed to do it. And after he'd
accumulated a statistical output he went around on the same campus and he
asked other people, he said, "Gee, would you devote two afternoons a week to
taking juvenile delinquents somewhere and suffering greatly yourself to help
them," and there he got 100% of the people to say no. But after he'd made
the first request, he backed up a little, and he said, "Would you at least
take them to the zoo one afternoon?" He raised the compliance rate from a
third to a half. He got three times the success by just going through the
little ask-for-a-lot-and-back-off.
Now if the human mind, on a subconscious level, can be manipulated that way
and you don't know it, I always use the phrase, "You're like a one-legged
man in an ass-kicking contest." I mean you are really giving a lot of
quarter to the external world that you can't afford to give. And on this
so-called role theory, where you tend to act in the way that other people
expect, and that's reciprocation if you think about the way society is
organized.
A guy named Zimbardo had people at Stanford divide into two pieces: one were
the guards and the other were the prisoners, and they started acting out
roles as people expected. He had to stop the experiment after about five
days. He was getting into human misery and breakdown and pathological
behavior. I mean it was...it was awesome. However, Zimbardo is greatly
misinterpreted. It's not just reciprocation tendency and role theory that
caused that, it's consistency and commitment tendency. Each person, as he
acted as a guard or a prisoner, the action itself was pounding in the idea.
Wherever you turn, this consistency and commitment tendency is affecting
you. In other words, what you think may change what you do, but perhaps even
more important, what you do will change what you think. And you can say,
"Everybody knows that." I want to tell you I didn't know it well enough
early enough.
7. Seventh, now this is a lollapalooza, and Henry Kaufman wisely talked
about this: bias from over-influence by social proof -- that is, the
conclusions of others, particularly under conditions of natural uncertainty
and stress.
And here, one of the cases the psychologists use is Kitty Genovese, where
all these people -- I don't know, 50, 60, 70 of them -- just sort of sat and
did nothing while she was slowly murdered. Now one of the explanations is
that everybody looked at everybody else and nobody else was doing anything,
and so there's automatic social proof that the right thing to do is nothing.
That's not a good enough explanation for Kitty Genovese, in my judgment.
That's only part of it. There are microeconomic ideas and gain/loss ratios
and so forth that also come into play. I think time and time again, in
reality, psychological notions and economic notions interplay, and the man
who doesn't understand both is a damned fool.
Big-shot businessmen get into these waves of social proof. Do you remember
some years ago when one oil company bought a fertilizer company, and every
other major oil company practically ran out and bought a fertilizer company?
And there was no more damned reason for all these oil companies to buy
fertilizer companies, but they didn't know exactly what to do, and if Exxon
was doing it, it was good enough for Mobil, and vice versa. I think they're
all gone now, but it was a total disaster.
Now let's talk about efficient market theory, a wonderful economic doctrine
that had a long vogue in spite of the experience of Berkshire Hathaway. In
fact one of the economists who won -- he shared a Nobel Prize -- and as he
looked at Berkshire Hathaway year after year, which people would throw in
his face as saying maybe the market isn't quite as efficient as you think,
he said, "Well, it's a two-sigma event." And then he said we were a
three-sigma event. And then he said we were a four-sigma event. And he
finally got up to six sigmas -- better to add a sigma than change a theory,
just because the evidence comes in differently. [Laughter] And, of course,
when this share of a Nobel Prize went into money management himself, he sank
like a stone.
If you think about the doctrines I've talked about, namely, one, the power
of reinforcement -- after all you do something and the market goes up and
you get paid and rewarded and applauded and what have you, meaning a lot of
reinforcement, if you make a bet on a market and the market goes with you.
Also, there's social proof. I mean the prices on the market are the ultimate
form of social proof, reflecting what other people think, and so the
combination is very powerful. Why would you expect general market levels to
always be totally efficient, say even in 1973-74 at the pit, or in 1972 or
whatever it was when the Nifty 50 were in their heyday? If these
psychological notions are correct, you would expect some waves of
irrationality, which carry general levels, so they're inconsistent with
reason.
8. Nine [he means eight]: what made these economists love the efficient
market theory is the math was so elegant.
And after all, math was what they'd learned to do. To the man with a hammer,
every problem tends to look pretty much like a nail. The alternative truth
was a little messy, and they'd forgotten the great economists Keynes, whom I
think said, "Better to be roughly right than precisely wrong."
9. Nine: bias from contrast-caused distortions of sensation, perception and
cognition.
Here, the great experiment that Cialdini does in his class is he takes three
buckets of water: one's hot, one's cold and one's room temperature, and he
has the student stick his left hand in the hot water and his right hand in
the cold water. Then he has them remove the hands and put them both in the
room temperature bucket, and of course with both hands in the same bucket of
water, one seems hot, the other seems cold because the sensation apparatus
of man is over-influenced by contrast. It has no absolute scale; it's got a
contrast scale in it. And it's a scale with quantum effects in it too. It
takes a certain percentage change before it's noticed.
Maybe you've had a magician remove your watch -- I certainly have -- without
your noticing it. It's the same thing. He's taking advantage of
contrast-type troubles in your sensory apparatus. But here the great truth
is that cognition mimics sensation, and the cognition manipulators mimic the
watch-removing magician. In other words, people are manipulating you all day
long on this contrast phenomenon.
Cialdini cites the case of the real estate broker. And you've got the rube
that's been transferred into your town, and the first thing you do is you
take the rube out to two of the most awful, overpriced houses you've ever
seen, and then you take the rube to some moderately overpriced house, and
then you stick him. And it works pretty well, which is why the real estate
salesmen do it. And it's always going to work.
And the accidents of life can do this to you, and it can ruin your life. In
my generation, when women lived at home until they got married, I saw some
perfectly terrible marriages made by highly desirable women because they
lived in terrible homes. And I've seen some terrible second marriages which
were made because they were slight improvements over an even worse first
marriage. You think you're immune from these things, and you laugh, and I
want to tell you, you aren't.
My favorite analogy I can't vouch for the accuracy of. I have this worthless
friend I like to play bridge with, and he's a total intellectual amateur
that lives on inherited money, but he told me once something I really
enjoyed hearing. He said, "Charlie," he say, "If you throw a frog into very
hot water, the frog will jump out, but if you put the frog in room
temperature water and just slowly heat the water up, the frog will die
there." Now I don't know whether that's true about a frog, but it's sure as
hell true about many of the businessmen I know [laughter], and there, again,
it is the contrast phenomenon. But these are hot-shot, high-powered people.
I mean these are not fools. If it comes to you in small pieces, you're
likely to miss, so if you're going to be a person of good judgment, you have
to do something about this warp in your head where it's so misled by mere
contrast.
10. Bias from over-influence by authority.
Well here, the Milgrim experiment, as it's called -- I think there have been
1,600 psychological papers written about Milgrim. And he had a person posing
as an authority figure trick ordinary people into giving what they had every
reason to expect was heavy torture by electric shock to perfectly innocent
fellow citizens. And he was trying to show why Hitler succeeded and a few
other things, and so this really caught the fancy of the world. Partly it's
so politically correct, and over-influence by authority...
You'll like this one: You get a pilot and a co-pilot. The pilot is the
authority figure. They don't do this in airplanes, but they've done it in
simulators. They have the pilot do something where the co-pilot, who's been
trained in simulators a long time -- he knows he's not to allow the plane to
crash -- they have the pilot to do something where an idiot co-pilot would
know the plane was going to crash, but the pilot's doing it, and the
co-pilot is sitting there, and the pilot is the authority figure. 25% of the
time the plane crashes. I mean this is a very powerful psychological
tendency. It's not quite as powerful as some people think, and I'll get to
that later.
11. Eleven: bias from deprival super-reaction syndrome, including bias
caused by present or threatened scarcity, including threatened removal of
something almost possessed, but never possessed.
Here I took the Munger dog, a lovely, harmless dog. The only way to get that
dog to bite you is to try and take something out of its mouth after it was
already there. And you know, if you've tried to do takeaways in labor
negotiations, you'll know that the human version of that dog is there in all
of us. And I have a neighbor, a predecessor who had a little island around
the house, and his next door neighbor put a little pine tree on it that was
about three feet high, and it turned his 180 degree view of the harbor into
179 3/4. Well they had a blood feud like the Hatfields and McCoys, and it
went on and on and on...
I mean people are really crazy about minor decrements down. And then, if you
act on them, then you get into reciprocation tendency, because you don't
just reciprocate affection, you reciprocate animosity, and the whole thing
can escalate. And so huge insanities can come from just subconsciously
over-weighing the importance of what you're losing or almost getting and not
getting.
And the extreme business case here was New Coke. Coca-Cola has the most
valuable trademark in the world. We're the major shareholder -- I think we
understand that trademark. Coke has armies of brilliant engineers, lawyers,
psychologists, advertising executives and so forth, and they had a trademark
on a flavor, and they'd spent the better part of 100 years getting people to
believe that trademark had all these intangible values too. And people
associate it with a flavor. And so they were going to tell people not that
it was improved, because you can't improve a flavor. A flavor is a matter of
taste. I mean you may improve a detergent or something, but don't think
you're going to make a major change in a flavor. So they got this huge
deprival super-reaction syndrome.
Pepsi was within weeks of coming out with old Coke in a Pepsi bottle, which
would've been the biggest fiasco in modern times. Perfect insanity. And by
the way, both Goizuetta [Coke's CEO at the time] and Keough [an influential
former president and director of the company] are just wonderful about it. I
mean they just joke. Keough always says, "I must've been away on vacation."
He participated in every single decision -- he's a wonderful guy. And by the
way, Goizuetta is a wonderful, smart guy -- an engineer. Smart people make
these terrible boners. How can you not understand deprival super-reaction
syndrome? But people do not react symmetrically to loss and gain. Well maybe
a great bridge player like Zeckhauser does, but that's a trained response.
Ordinary people, subconsciously affected by their inborn tendencies...
12. Bias from envy/jealousy.
Well envy/jealousy made, what, two out of the ten commandments? Those of you
who have raised siblings you know about envy, or tried to run a law firm or
investment bank or even a faculty? I've heard Warren say a half a dozen
times, "It's not greed that drives the world, but envy."
Here again, you go through the psychology survey courses, and you go to the
index: envy/jealousy, 1,000-page book, it's blank. There's some blind spots
in academia, but it's an enormously powerful thing, and it operates, to a
considerable extent, on the subconscious level. Anybody who doesn't
understand it is taking on defects he shouldn't have.
13. Bias from chemical dependency.
Well, we don't have to talk about that. We've all seen so much of it, but
it's interesting how it'll always cause this moral breakdown if there's any
need, and it always involves massive denial. See it just aggravates what we
talked about earlier in the aviator case, the tendency to distort reality so
that it's endurable.
14. Bias from mis-gambling compulsion.
Well here, Skinner made the only explanation you'll find in the standard
psychology survey course. He, of course, created a variable reinforcement
rate for his pigeons and his mice, and he found that that would pound in the
behavior better than any other enforcement pattern. And he says, "Ah ha!
I've explained why gambling is such a powerful, addictive force in this
civilization." I think that is, to a very considerable extent, true, but
being Skinner, he seemed to think that was the only explanation, but the
truth of the matter is that the devisors of these modern machines and
techniques know a lot of things that Skinner didn't know.
For instance, a lottery. You have a lottery where you get your number by
lot, and then somebody draws a number by lot, it gets lousy play. You have a
lottery where people get to pick their number, you get big play. Again, it's
this consistency and commitment thing. People think if they have committed
to it, it has to be good. The minute they've picked it themselves it gets an
extra validity. After all, they thought it and they acted on it.
Then if you take the slot machines, you get bar, bar, walnut. And it happens
again and again and again. You get all these near misses. Well that's
deprival super-reaction syndrome, and boy do the people who create the
machines understand human psychology. And for the high-IQ crowd they've got
poker machines where you make choices. So you can play blackjack, so to
speak, with the machine. It's wonderful what we've done with our computers
to ruin the civilization.
But at any rate, mis-gambling compulsion is a very, very powerful and
important thing. Look at what's happening to our country: every Indian has a
reservation, every river town, and look at the people who are ruined by it
with the aid of their stock brokers and others. And again, if you look in
the standard textbook of psychology you'll find practically nothing on it
except maybe one sentence talking about Skinner's rats. That is not an
adequate coverage of the subject.
15. Bias from liking distortion, including the tendency to especially like
oneself, one's own kind and one's own idea structures, and the tendency to
be especially susceptible to being misled by someone liked. Disliking
distortion, bias from that, the reciprocal of liking distortion and the
tendency not to learn appropriately from someone disliked.
Well here, again, we've got hugely powerful tendencies, and if you look at
the wars in part of the Harvard Law School, as we sit here, you can see that
very brilliant people get into this almost pathological behavior. And these
are very, very powerful, basic, subconscious psychological tendencies, or at
least party subconscious.
Now let's get back to B.F. Skinner, man-with-a-hammer syndrome revisited.
Why is man-with-a-hammer syndrome always present? Well if you stop to think
about it, it's incentive-caused bias. His professional reputation is all
tied up with what he knows. He likes himself and he likes his own ideas, and
he's expressed them to other people -- consistency and commitment tendency.
I mean you've got four or five of these elementary psychological tendencies
combining to create this man-with-a-hammer syndrome. Once you realize that
you can't really buy your thinking -- partly you can, but largely you can't
in this world -- you have learned a lesson that's very useful in life.
George Bernard Shaw had a character say in The Doctor's Dilemma, "In the
last analysis, every profession is a conspiracy against the laity." But he
didn't have it quite right, because it isn't so much a conspiracy as it is a
subconscious, psychological tendency.
The guy tells you what is good for him. He doesn't recognize that he's doing
anything wrong any more than that doctor did when he was pulling out all
those normal gall bladders. And he believes his own idea structures will
cure cancer, and he believes that the demons that he's the guardian against
are the biggest demons and the most important ones, and in fact they may be
very small demons compared to the demons that you face. So you're getting
your advice in this world from your paid advisor with this huge load of
ghastly bias. And woe to you.
There are only two ways to handle it: you can hire your advisor and then
just apply a windage factor, like I used to do when I was a rifle shooter.
I'd just adjust for so many miles an hour wind. Or you can learn the basic
elements of your advisor's trade. You don't have to learn very much, by the
way, because if you learn just a little then you can make him explain why
he's right. And those two tendencies will take part of the warp out of the
thinking you've tried to hire done. By and large it works terribly. I have
never seen a management consultant's report in my long life that didn't end
with the following paragraph: "What this situation really needs is more
management consulting." Never once. I always turn to the last page. Of
course Berkshire doesn't hire them, so I only do this on sort of a
voyeuristic basis. Sometimes I'm at a non-profit where some idiot hires one.
[Laughter]
16. Seventeen [he means 16]: bias from the non-mathematical nature of the
human brain in its natural state as it deal with probabilities employing
crude heuristics, and is often misled by mere contrast, a tendency to
overweigh conveniently available information and other psychologically
misrouted thinking tendencies on this list.
When the brain should be using the simple probability mathematics of Fermat
and Pascal applied to all reasonably obtainable and correctly weighted items
of information that are of value in predicting outcomes, the right way to
think is the way Zeckhauser plays bridge. It's just that simple. And your
brain doesn't naturally know how to think the way Zeckhauser knows how to
play bridge. Now, you notice I put in that availability thing, and there I'm
mimicking some very eminent psychologists [Daniel] Kahneman, Eikhout[?] (I
hope I pronounced that right) and [Amos] Tversky, who raised the idea of
availability to a whole heuristic of misjudgment. And they are very
substantially right.
I mean ask the Coca-Cola Company, which has raised availability to a secular
religion. If availability changes behavior, you will drink a helluva lot
more Coke if it's always available. I mean availability does change behavior
and cognition. Nonetheless, even though I recognize that and applaud Tversky
and Kahneman, I don't like it for my personal system except as part of a
greater sub-system, which is you've got to think the way Zeckhauser plays
bridge. And it isn't just the lack of availability that distorts your
judgment. All the things on this list distort judgment. And I want to train
myself to kind of mentally run down the list instead of just jumping on
availability. So that's why I state it the way I do.
In a sense these psychological tendencies make things unavailable, because
if you quickly jump to one thing, and then because you jumped to it the
consistency and commitment tendency makes you lock in, boom, that's error
number one. Or if something is very vivid, which I'm going to come to next,
that will really pound in. And the reason that the thing that really matters
is now unavailable and what's extra-vivid wins is, I mean, the
extra-vividness creates the unavailability. So I think it's much better to
have a whole list of things that would cause you to be less like Zeckhauser
than it is just to jump on one factor.
Here I think we should discuss John Gutfreund. This is a very interesting
human example, which will be taught in every decent professional school for
at least a full generation. Gutfreund has a trusted employee and it comes to
light not through confession but by accident that the trusted employee has
lied like hell to the government and manipulated the accounting system, and
it was really equivalent to forgery. And the man immediately says, "I've
never done it before, I'll never do it again. It was an isolated example."
And of course it was obvious that he was trying to help the government as
well as himself, because he thought the government had been dumb enough to
pass a rule that he'd spoken against, and after all if the government's not
going to pay attention to a bond trader at Salomon, what kind of a
government can it be?
At any rate, this guy has been part of a little clique that has made, well,
way over a billion dollars for Salomon in the very recent past, and it's a
little handful of people. And so there are a lot of psychological forces at
work, and then you know the guy's wife, and he's right in front of you, and
there's human sympathy, and he's sort of asking for your help, which
encourages reciprocation, and there's all these psychological tendencies are
working, plus the fact he's part of a group that had made a lot of money for
you. At any rate, Gutfreund does not cashier the man, and of course he had
done it before and he did do it again. Well now you look as though you
almost wanted him to do it again. Or God knows what you look like, but it
isn't good. And that simple decision destroyed Jim Gutfreund, and it's so
easy to do.
Now let's think it through like the bridge player, like Zeckhauser. You find
an isolated example of a little old lady in the See's Candy Company, one of
our subsidiaries, getting into the till. And what does she say? "I never did
it before, I'll never do it again. This is going to ruin my life. Please
help me." And you know her children and her friends, and she'd been around
30 years and standing behind the candy counter with swollen ankles. When
you're an old lady it isn't that glorious a life. And you're rich and
powerful and there she is: "I never did it before, I'll never do it again."
Well how likely is it that she never did it before? If you're going to catch
10 embezzlements a year, what are the chances that any one of them --
applying what Tversky and Kahneman called baseline information -- will be
somebody who only did it this once? And the people who have done it before
and are going to do it again, what are they all going to say? Well in the
history of the See's Candy Company they always say, "I never did it before,
and I'm never going to do it again." And we cashier them. It would be evil
not to, because terrible behavior spreads.
Remember...what was it? Serpico? I mean you let that stuff...you've got
social proof, you've got incentive-caused bias, you've got a whole lot of
psychological factors that will cause the evil behavior to spread, and
pretty soon the whole damn...your place is rotten, the civilization is
rotten. It's not the right way to behave. And I will admit that I
have...when I knew the wife and children, I have paid severance pay when I
fire somebody for taking a mistress on an extended foreign trip. It's not
the adultery I mind, it's the embezzlement. But there, I wouldn't do it like
Gutfreund did it, where they'd been cheating somebody else on my behalf.
There I think you have to cashier. But if they're just stealing from you and
you get rid of them, I don't think you need the last ounce of vengeance. In
fact I don't think you need any vengeance. I don't think vengeance is much
good.
17. Now we come to bias from over-influence by extra-vivid evidence.
Here's one that...I'm at least $30 million poorer as I sit here giving this
little talk because I once bought 300 shares of a stock and the guy called
me back and said, "I've got 1,500 more," and I said, "Will you hold it for
15 minutes while I think about it?" And the CEO of this company -- I have
seen a lot of vivid peculiarities in a long life, but this guy set a world
record; I'm talking about the CEO -- and I just mis-weighed it. The truth of
the matter was the situation was foolproof. He was soon going to be dead,
and I turned down the extra 1,500 shares, and it's now cost me $30 million.
And that's life in the big city. And it wasn't something where stock was
generally available. So it's very easy to mis-weigh the vivid evidence, and
Gutfreund did that when he looked into the man's eyes and forgave a
colleague.
18. Twenty-two [he means 18]: Mental confusion caused by information not
arrayed in the mind and theory structures, creating sound generalizations
developed in response to the question "Why?" Also, mis-influence from
information that apparently but not really answers the question "Why?" Also,
failure to obtain deserved influence caused by not properly explaining why.
Well we all know people who've flunked, and they try and memorize and they
try and spout back and they just...it doesn't work. The brain doesn't work
that way. You've got to array facts on the theory structures answering the
question "Why?" If you don't do that, you just cannot handle the world.
And now we get to Feuerstein, who was the general counsel with Salomon when
Gutfreund made his big error, and Feuerstein knew better. He told Gutfreund,
"You have to report this as a matter of morality and prudent business
judgment." He said, "It's probably not illegal, there's probably no legal
duty to do it, but you have to do it as a matter of prudent conduct and
proper dealing with your main customer." He said that to Gutfreund on at
least two or three occasions. And he stopped. And, of course, the persuasion
failed, and when Gutfreund went down, Feuerstein went with him. It ruined a
considerable part of Feuerstein's life.
Well Feuerstein, [who] was a member of the Harvard Law Review, made an
elementary psychological mistake. You want to persuade somebody, you really
tell them why. And what did we learn in lesson one? Incentives really
matter? Vivid evidence really works? He should've told Gutfreund, "You're
likely to ruin your life and disgrace your family and lose your money." And
is Mozer worth this? I know both men. That would've worked. So Feuerstein
flunked elementary psychology, this very sophisticated, brilliant lawyer.
But don't you do that. It's not very hard to do, you know, just to remember
that "Why?" is very important.
19. Other normal limitations of sensation, memory, cognition and knowledge.
Well, I don't have time for that.
20. Stress-induced mental changes, small and large, temporary and permanent.
Here, my favorite example is the great Pavlov. He had all these dogs in
cages, which had all been conditioned into changed behaviors, and the great
Leningrad flood came and it just went right up and the dog's in a cage. And
the dog had as much stress as you can imagine a dog ever having. And the
water receded in time to save some of the dogs, and Pavlov noted that they'd
had a total reversal of their conditioned personality. And being the great
scientist he was, he spent the rest of his life giving nervous breakdowns to
dogs, and he learned a helluva lot that I regard as very interesting.
I have never known any Freudian analyst who knew anything about the last
work of Pavlov, and I've never met a lawyer who understood that what Pavlov
found out with those dogs had anything to do with programming and
de-programming and cults and so forth. I mean the amount of elementary
psychological ignorance that is out there in high levels is very
significant[?].
21. Then we've got other common mental illnesses and declines, temporary and
permanent, including the tendency to lose ability through disuse.
22. And then I've got development and organizational confusion from
say-something syndrome.
And here my favorite thing is the bee, a honeybee. And a honeybee goes out
and finds the nectar and he comes back, he does a dance that communicates to
the other bees where the nectar is, and they go out and get it. Well some
scientist who is clever, like B.F. Skinner, decided to do an experiment. He
put the nectar straight up. Way up. Well, in a natural setting, there is no
nectar where they're all straight up, and the poor honeybee doesn't have a
genetic program that is adequate to handle what he now has to communicate.
And you'd think the honeybee would come back to the hive and slink into a
corner, but he doesn't. He comes into the hive and does this incoherent
dance, and all my life I've been dealing with the human equivalent of that
honeybee. [Laughter] And it's a very important part of human organization so
the noise and the reciprocation and so forth of all these people who have
what I call say-something syndrome don't really affect the decisions.
Now the time has come to ask two or three questions. This is the most
important question in this whole talk:
1. What happens when these standard psychological tendencies combine? What
happens when the situation, or the artful manipulation of man, causes
several of these tendencies to operate on a person toward the same end at
the same time?
The clear answer is the combination greatly increases power to change
behavior, compared to the power of merely one tendency acting alone.
Examples are:
* Tupperware parties. Tupperware's now made billions of dollars out of
a few manipulative psychological tricks. It was so schlocky that directors
of Justin Dart's company resigned when he crammed it down his board's
throat. And he was totally right, by the way, judged by economic outcomes.
* Mony[?] conversion methods: boy do they work. He just combines four
or five of these things together.
* The system of Alcoholics Anonymous: a 50% no-drinking rate outcome
when everything else fails? It's a very clever system that uses four or five
psychological systems at once toward, I might say, a very good end.
* The Milgrim experiment. It's been widely interpreted as mere
obedience, but the truth of the matter is that the experimenter who got the
students to give the heavy shocks in Milgrim, he explained why. It was a
false explanation. "We need this to look for scientific truth," and so on.
That greatly changed the behavior of the people. And number two, he worked
them up: tiny shock, a little larger, a little larger. So commitment and
consistency tendency and the contrast principle were both working in favor
of this behavior. So again, it's four different psychological tendencies.
When you get these lollapalooza effects you will almost always find four or
five of these things working together.
When I was young there was a whodunit hero who always said, "Cherche la
femme." [In French, "Look for the woman."] What you should search for in
life is the combination, because the combination is likely to do you in. Or,
if you're the inventor of Tupperware parties, it's likely to make you
enormously rich if you can stand shaving when you do it.
One of my favorite cases is the McDonald-Douglas airliner evacuation
disaster. The government requires that airliners pass a bunch of tests, one
of them is evacuation: get everybody out, I think it's 90 seconds or
something like that. It's some short period of time. The government has
rules, make it very realistic, so on and so on. You can't select nothing but
20-year-old athletes to evacuate your airline. So McDonald-Douglas schedules
one of these things in a hangar, and they make the hangar dark and the
concrete floor is 25 feet down, and they've got these little rubber chutes,
and they've got all these old people, and they ring the bell and they all
rush out, and in the morning, when the first test is done, they create, I
don't know, 20 terrible injuries when people go off to hospitals, and of
course they scheduled another one for the afternoon.
By the way they didn't read[?] the time schedule either, in addition to
causing all the injuries. Well...so what do they do? They do it again in the
afternoon. Now they create 20 more injuries and one case of a severed spinal
column with permanent, unfixable paralysis. These are engineers, these are
brilliant people, this is thought over through in a big bureaucracy. Again,
it's a combination of [psychological tendencies]: authorities told you to do
it. He told you to make it realistic. You've decided to do it. You'd decided
to do it twice. Incentive-caused bias. If you pass you save a lot of money.
You've got to jump this hurdle before you can sell your new airliner. Again,
three, four, five of these things work together and it turns human brains
into mush. And maybe you think this doesn't happen in picking investments?
If so, you're living in a different world than I am.
Finally, the open-outcry auction. Well the open-outcry auction is just made
to turn the brain into mush: you've got social proof, the other guy is
bidding, you get reciprocation tendency, you get deprival super-reaction
syndrome, the thing is going away... I mean it just absolutely is designed
to manipulate people into idiotic behavior.
Finally the institution of the board of directors of the major American
company. Well, the top guy is sitting there, he's an authority figure. He's
doing asinine things, you look around the board, nobody else is objecting,
social proof, it's okay? Reciprocation tendency, he's raising the directors
fees every year, he's flying you around in the corporate airplane to look at
interesting plants, or whatever in hell they do, and you go and you really
get extreme dysfunction as a corrective decision-making body in the typical
American board of directors. They only act, again the power of incentives,
they only act when it gets so bad it starts making them look foolish, or
threatening legal liability to them. That's Munger's rule. I mean there are
occasional things that don't follow Munger's rule, but by and large the
board of directors is a very ineffective corrector if the top guy is a
little nuts, which, of course, frequently happens.
2. The second question: Isn't this list of standard psychological tendencies
improperly tautological compared with the system of Euclid? That is, aren't
there overlaps? And can't some items on the list be derived from
combinations of other items? The answer to that is, plainly, yes.
3. Three: What good, in the practical world, is the thought system indicated
by the list? Isn't practical benefit prevented because these psychological
tendencies are programmed into the human mind by broad evolution so we can't
get rid of them? [By] broad evolution, I mean the combination of genetic and
cultural evolution, but mostly genetic.
Well the answer is the tendencies are partly good and, indeed, probably much
more good than bad, otherwise they wouldn't be there. By and large these
rules of thumb, they work pretty well for man given his limited mental
capacity. And that's why they were programmed in by broad evolution. At any
rate, they can't be simply washed out automatically and they shouldn't be.
Nonetheless, the psychological thought system described is very useful in
spreading wisdom and good conduct when one understands it and uses it
constructively.
Here are some examples:
* One: Karl Braun's communication practices. He designed oil
refineries with spectacular skill and integrity. He had a very simple rule.
Remember I said, "Why is it important?" You got fired in the Braun company.
You had to have five Ws. You had to tell Who, What you wanted to do, Where
and When, and you had to tell him Why. And if you wrote a communication and
left out the Why you got fired, because Braun knew it's complicated building
an oil refinery. It can blow up...all kinds of things happen. And he knew
that his communication system worked better if you always told him why.
That's a simple discipline, and boy does it work.
* Two: the use of simulators in pilot training. Here, again, abilities
attenuate with disuse. Well the simulator is God's gift because you can keep
them fresh.
* Three: The system of Alcoholics Anonymous, that's certainly a
constructive use of somebody understanding psychological tendencies. I think
they just wandered into it, as a matter of fact, so you can regard it as
kind of an evolutionary outcome. But just because they've wandered into it
doesn't mean you can't invent its equivalent when you need it for a good
purpose.
* Four: Clinical training in medical schools: here's a profoundly
correct way of understanding psychology. The standard practice is watch one,
do one, teach one. Boy does that pound in what you want pounded in. Again,
the consistency and commitment tendency. And that is a profoundly correct
way to teach clinical medicine.
* Five: The rules of the U.S. Constitutional Convention: totally
secret, no vote until the whole vote, then just one vote on the whole
Constitution. Very clever psychological rules, and if they had a different
procedure, everybody would've been pushed into a corner by his own
pronouncements and his own oratory and his own... And no recorded votes
until the last one. And they got it through by a whisker with those wise
rules. We wouldn't have had the Constitution if our forefathers hadn't been
so psychologically acute. And look at the crowd we got now.
* Six: the use of granny's rule. I love this. One of the psychologists
who works for the Center gets paid a fortune running around America, and he
teaches executives to manipulate themselves. Now granny's rule is you don't
get the ice cream unless you eat your carrots. Well granny was a very wise
woman. That is a very good system. And so this guy, a very eminent
psychologist, he runs around the country telling executives to organize
their day so they force themselves to do what's unpleasant and important by
doing that first, and then rewarding themselves with something they really
like doing. He is profoundly correct.
* Seven: the Harvard Business School's emphasis on decision trees.
When I was young and foolish I used to laugh at the Harvard Business School.
I said, "They're teaching 28-year-old people that high school algebra works
in real life?" We're talking about elementary probability. But later I wised
up and I realized that it was very important that they do that, and better
late than never.
* Eight: the use of post-mortems at Johnson & Johnson. At most
corporations if you make an acquisition and it turns out to be a disaster,
all the paperwork and presentations that caused the dumb acquisition to be
made are quickly forgotten. You've got denial, you've got everything in the
world. You've got Pavlovian association tendency. Nobody even wants to even
be associated with the damned thing or even mention it. At Johnson &
Johnson, they make everybody revisit their old acquisitions and wade through
the presentations. That is a very smart thing to do. And by the way, I do
the same thing routinely.
* Nine: the great example of Charles Darwin is he avoided confirmation
bias. Darwin probably changed my life because I'm a biography nut, and when
I found out the way he always paid extra attention to the disconfirming
evidence and all these little psychological tricks. I also found out that he
wasn't very smart by the ordinary standards of human acuity, yet there he is
buried in Westminster Abbey. That's not where I'm going, I'll tell you. And
I said, "My God, here's a guy that, by all objective evidence, is not nearly
as smart as I am and he's in Westminster Abbey? He must have tricks I should
learn." And I started wearing little hair shirts like Darwin to try and
train myself out of these subconscious psychological tendencies that cause
so many errors. It didn't work perfectly, as you can tell from listening to
this talk, but it would've been even worse if I hadn't done what I did. And
you can know these psychological tendencies and avoid being the patsy of all
the people that are trying to manipulate you to your disadvantage, like Sam
Walton. Sam Walton won't let a purchasing agent take a handkerchief from a
salesman. He knows how powerful the subconscious reciprocation tendency is.
That is a profoundly correct way for Sam Walton to behave.
* Ten: Then there is the Warren Buffett rule for open-outcry auctions:
don't go. We don't go to the closed-bid auctions too because they...that's a
counter-productive way to do things ordinarily for a different reason, which
Zeckhauser would understand.
4. Four: What special knowledge problems lie buried in the thought system
indicated by the list?
Well one is paradox. Now we're talking about a type of human wisdom that the
more people learn about it, the more attenuated the wisdom gets. That's an
intrinsically paradoxical kind of wisdom. But we have paradox in mathematics
and we don't give up mathematics. I say damn the paradox. This stuff is
wonderfully useful. And by the way, the granny's rule, when you apply it to
yourself, is sort of a paradox in a paradox. The manipulation still works
even though you know you're doing it. And I've seen that done by one person
to another. I drew this beautiful woman as my dinner partner a few years
ago, and I'd never seen her before. Well, she's married to prominent
Angelino, and she sat down next to me and she turned her beautiful face up
and she said, "Charlie," she said, "What one word accounts for your
remarkable success in life?" And I knew I was being manipulated and that
she'd done this before, and I just loved it. I mean I never see this woman
without a little lift in my spirits. And by the way I told her I was
rational. You'll have to judge yourself whether that's true. I may be
demonstrating some psychological tendency I hadn't planned on demonstrating.
How should the best parts of psychology and economics interrelate in an
enlightened economist's mind? Two views: that's the thermodynamics model.
You know, you can't derive thermodynamics from plutonium, gravity and laws
of mechanics, even though it's a lot of little particles interacting. And
here is this wonderful truth that you can sort of develop on your own, which
is thermodynamics. And some economists -- and I think Milton Friedman is in
this group, but I may be wrong on that -- sort of like the thermodynamics
model. I think Milton Friedman, who has a Nobel prize, is probably a little
wrong on that. I think the thermodynamics analogy is over-strained. I think
knowledge from these different soft sciences have to be reconciled to
eliminate conflict. After all, there's nothing in thermodynamics that's
inconsistent with Newtonian mechanics and gravity, and I think that some of
these economic theories are not totally consistent with other knowledge, and
they have to be bent. And I think that these behavioral economics...or
economists are probably the ones that are bending them in the correct
direction.
Now my prediction is when the economists take a little psychology into
account that the reconciliation will be quite endurable. And here my model
is the procession of the equinoxes. The world would be simpler for a
long-term climatologist if the angle of the axis of the Earth's rotation,
compared to the plane of the Euclyptic, were absolutely fixed. But it isn't
fixed. Over every 40,000 years or so there's this little wobble, and that
has pronounced long-term effects. Well in many cases what psychology is
going to add is just a little wobble, and it will be endurable. Here I quote
another hero of mine, which of course is Einstein, where he said, "The Lord
is subtle, but not malicious." And I don't think it's going to be that hard
to bend economics a little to accommodate what's right in psychology.
5. Fifth: The final question is: If the thought system indicated by this
list of psychological tendencies has great value not recognized and
employed, what should the educational system do about it?
I am not going to answer that one now. I like leaving a little mystery. Have
I used up all the time so there's no time for questions?
Moderator: I think that what we're going to do is we're going to borrow a
little bit of time from the end of the day questions, and we're going to
move it and allocate it to Charles Munger, if that's acceptable to
everybody.
Munger: By the way, the dean of the Stanford Law School is here today, Paul
Breast, and he is trying to create a course at the Stanford Law School that
tries to work stuff similar to this into worldly wisdom for lawyers, which I
regard as a profoundly good idea, and he wrote an article about it, and
you'll be given a copy along with Cialdini's book. Questions?
Audience Member #1: Will we be able to get a copy of that list of 24
[standard causes of human misjudgment]?
Munger: Yes. I presumed there would be one curious man [laughter], and I
have it and I'll put it over there on the table, but don't take more than
one, because I didn't anticipate such a big crowd. And if we run short, I'm
sure the Center is up to making other copies.
Audience Member #2: If I had listened to this talk I might have thought that
Charles Munger was a psychology professor operating in a business school.
Every once in a while a micro-issue -- you told us how you would've deal
with one of these issues, for example with the unfortunate lady See's -- but
you didn't tell us how these tendencies affected you and what's probably the
most important, or one of the most important elements of your success, which
was deciding where to invest your money. And I'm wondering if you might
relate some of these principles to some of your past decisions that way.
Munger: Well of course an investment decision in the common stock of a
company frequently involves a whole lot of factors interacting. Usually, of
course, there's one big, simple model, and a lot of those models are
microeconomic. And I have a little list of -- it wouldn't be nearly 24, of
those -- but I don't have time for that one. And I don't have too much
interest in teaching other people how to get rich. And that isn't because I
fear the competition or anything like that -- 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.
Audience Member #3: Out of those 24, could you tell us the one rule that's
most important?
Munger: I would say the one thing that causes the most trouble is when you
combine a bunch of these together, you get this lollapalooza effect. And
again, if you read the psychology textbooks, they don't discuss how these
things combine, at least not very much. Do they multiply? Do they add? How
does it work? You'd think it'd be just an automatic subject for research,
but it doesn't seem to turn the psychology establishment on. I think this is
a man from Mars approach to psychology. I just reached in and took what I
thought I had to have. That is a different set of incentives from rising in
an economic establishment where the rewards system, again, the
reinforcement, comes from being a truffle hound. That's what Jacob Viner,
the great economist called it: the truffle hound -- an animal so bred and
trained for one narrow purpose that he wasn't much good at anything else,
and that is the reward system in a lot of academic departments. It is not
necessarily for the good. It may be fine if you want new drugs or something.
You want people stunted in a lot of different directions so they can grow in
one narrow direction, but I don't think it's good teaching psychology to the
masses. In fact, I think it's terrible.
source:
www.loschmanagement.com/Berkshire%20Hathaway/Charlie%20munger/The%20P
sychology%20of%20Human%20Misjudgement.htm