24 Standard Causes of Human Misjudgment, from buffettmungerwisdom.wordpress.com/2013/01/14/ful…
1. Not recognizing Incentives
"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."
"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."
2. Denial
"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. The reality is too painful to bear, so you just distort it until it’s bearable."
"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. The reality is too painful to bear, so you just distort it until it’s bearable."
3. Agency Costs (Principal-Agent Problem)
If you pay people on a cost-plus basis, they will run up their expenses - *and may genuinely believe they are doing the right thing* (See: #1)
If you pay people on a cost-plus basis, they will run up their expenses - *and may genuinely believe they are doing the right thing* (See: #1)
4. Confirmation Bias
"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."
"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."
5. Pavlovian association
Don't mistake correlation for causation.
(It's incredibly strong and you will fail... but remember it is a mistake)
Don't mistake correlation for causation.
(It's incredibly strong and you will fail... but remember it is a mistake)
6. Reciprocity
This is a powerful bias best elaborated in Cialdini's book on Influence.
It takes many forms - one underrated one is instead of asking for what you want, ask for a lot more, and when they say no, back off and ask for what you want. Success rates improve 3x.
This is a powerful bias best elaborated in Cialdini's book on Influence.
It takes many forms - one underrated one is instead of asking for what you want, ask for a lot more, and when they say no, back off and ask for what you want. Success rates improve 3x.
7. Social proof/Social pressure
Monkey see, monkey do. So much of what we do and what we believe is simply reflecting what we see others do.
(Including, ahem, judging quality of tweets based on likes.)
Monkey see, monkey do. So much of what we do and what we believe is simply reflecting what we see others do.
(Including, ahem, judging quality of tweets based on likes.)
8. Mistaking precision for accuracy
“Better to be roughly right than precisely wrong.” - JM Keynes
“Better to be roughly right than precisely wrong.” - JM Keynes
9. Contrast bias
Most people know the frog-in-boiling-water story.
What's less obvious is how this is used against you when real estate agents show you two extremely overpriced houses and the third (still moderately overpriced) house looks cheap by comparison.
Most people know the frog-in-boiling-water story.
What's less obvious is how this is used against you when real estate agents show you two extremely overpriced houses and the third (still moderately overpriced) house looks cheap by comparison.
10. Bias for Authority
We are very hesitant to contradict authority figures, even in artificial settings. We also defer too easily to statements by authority instead of verifying validity from first principles.
We are very hesitant to contradict authority figures, even in artificial settings. We also defer too easily to statements by authority instead of verifying validity from first principles.
11. Loss aversion
One way to elicit an extremely strong response from people is to give them something and then remove it. Even the threat of removal, or even if they never actually possessed the thing but rather the promise of the thing, works extremely well.
One way to elicit an extremely strong response from people is to give them something and then remove it. Even the threat of removal, or even if they never actually possessed the thing but rather the promise of the thing, works extremely well.
12. Envy and Jealousy
“It’s not greed that drives the world, but envy.” - Warren Buffett
“It’s not greed that drives the world, but envy.” - Warren Buffett
13. Chemical dependency
I'm not sure what this refers to? Perhaps something about how our brains are affected by what we consume. Munger doesn't elaborate much here.
I'm not sure what this refers to? Perhaps something about how our brains are affected by what we consume. Munger doesn't elaborate much here.
14. Gambling compulsion
BF Skinner's classic research on variable rewards applies as much on pigeons as it does humans pulling the arms on slot machines and the refresh action on social media feeds.
BF Skinner's classic research on variable rewards applies as much on pigeons as it does humans pulling the arms on slot machines and the refresh action on social media feeds.
15. Liking distortion
We tend to irrationally like our own ideas and those of people who share our backgrounds.
🚨 We are especially susceptible to being misled by an authority we like. 🚨
We tend to irrationally like our own ideas and those of people who share our backgrounds.
🚨 We are especially susceptible to being misled by an authority we like. 🚨
16. Probability biases
These include:
- Recency bias - we overestimate the probability of something that happened recently (or that we heard about recently)
- Availability bias - we think easy-to-access information is more important or accurate than hard-to-access information
These include:
- Recency bias - we overestimate the probability of something that happened recently (or that we heard about recently)
- Availability bias - we think easy-to-access information is more important or accurate than hard-to-access information
17. Anecdotal bias
similar to the above, but we REALLY extrapolate from one particularly vivid example, in the face of overwhelming evidence and common sense, particularly if it is a great story.
similar to the above, but we REALLY extrapolate from one particularly vivid example, in the face of overwhelming evidence and common sense, particularly if it is a great story.
18. Generalization from an set of examples, without fundamentally understanding "Why"
Related failures:
- mis-influence from information that apparently (but not really) answers the question “Why?”
- failure to obtain deserved influence caused by not properly explaining why
Related failures:
- mis-influence from information that apparently (but not really) answers the question “Why?”
- failure to obtain deserved influence caused by not properly explaining why
19-22 Physical limitations and Say-something Syndrome
not that interesting but good to be aware
not that interesting but good to be aware
23. The Lollapalooza Effect
When the above biases combine, they are far more powerful than each acting alone.
You see this in:
- the Stanford Prison experiment
- Tupperware parties
- Alcoholics Anonymous
- Airline disasters
- Auction houses
- Boards of directors
When the above biases combine, they are far more powerful than each acting alone.
You see this in:
- the Stanford Prison experiment
- Tupperware parties
- Alcoholics Anonymous
- Airline disasters
- Auction houses
- Boards of directors
the numbering is kind of all over the place, I don't think there were 24 but you can find the full talk and transcript here:
https://twitter.com/Coding_Career/status/1332289858652389377?s=20
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