8/9/2019 Charlie Munger 25 Cognitive Biases

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1. Authority-MisinfluenceTendency

Following orders just because someonesays so.

2. Availability-MisweighingTendency

We overweight what's eas ily available. A checklist or set of rules can help with thistendency.

3. Contrast-MisreactionTendency

Our problem here is a misunderstandingof comparisons and missing out on themagnitude of decisions. This gets toPhillip Fisher's point when he once said,"the stock market is filled with individuals

who know the price of everything but the value of nothing ." Evaluate people andobjects by themselves and not by theircontrast.

4. Curiosity Tendency

There is not enough curiosity to learn,even though you receive so many benefits

from a continuous learning process.Munger says, "the curious are alsoprovided with much fun and wisdom onceformal education has ended."

5. Deprival-SuperreactionTendency

Loss aversion. Loss aversion refers topeople's tendency to strongly preferavoiding losses to acquiring gains . Moststudies suggest that losses are twice aspowerful, psychologically, as ga ins.

6. Disliking/HatingTendency

We also ignore the virtues of those things we dislike and distort the facts to facilitatethat hatred while putting on blinders to

other options and opinions.

7. Doubt- AvoidanceTendency

If we are unsure about a decision we try toquickly remove any doubt by making anill-informed, quick decision.

8. Drug-MisinfluenceTendency

Impaired judgment due to drugs

9. Envy/Jealousy Tendency

Self-explanatory, but Munger makes aninteresting point that envy and jealously are surprisingly absent from most psychtextbooks.

10. Excessive Self-RegardTendency

We all think we're above average. This is where overconfidence comes from.Munger says the greatest type of prideshould be taking pride in beingtrustworthy to avoid developing an ego.

11. Inconsistency- AvoidanceTendency

We have a reluctance to change.Eliminating bad habits is a rare trait.

12. Influence-From-Mere-

AssociationTendency

We can be easily manipulated by mereassociation. It can be a group of people, thequality of a product, advertising, etc.

13. KantianFairnessTendency

Life isn't fair, but many can't accept this.Tolerating a little unfairness should be okay if it means a greater fairness for all. Theexample Munger uses is letting in otherdrivers on the freeway knowing they willreciprocate in the future.

14. Liking/LovingTendency

We ignore the faults of other people,products or companies that we admire.

15. LollapaloozaEffect/Tedency

To get extreme consequences when youcombine a number of these misjudgements

when trying for a particular outcome.

16. Over-Optimism

Tendency

Greed.

17. Reason-RespectingTendency

Some people just want the answers, not thereasons or a better understanding.

18. ReciprocationTendency

We tend to want to return the favor whensomeone helps us, which can be a goodthing at times, but it can also lead to poordecisions if you reciprocate business deals

based on these minor favors.

19. Reward andPunishment

Super-responseTendency

The power that incentives and disincentiveshave on the actions of others cannot be

overstated. Munger says this should beobvious but so many people don'tunderstand the how important incentivesare for shaping people's motivation tocomplete a task.

20. Senescence-MisinfluenceTendency

As we age there is a natural loss of certainskills and abilities. Continuous thinkingand learning helps to slow the decay.

21. Simple, Pain- AvoidingPsychologicalDenial

We have a habit of distorting the facts untilthey become bearable for our own views.

22. Social-Proof Tendency

This is when we tend to think and act likethose around us. It's the herd mentality.

23. Stress-InfluenceTendency

Adrenaline tends to produce faster and moreextreme reactions. Some stress can improveperformance but heavy stress often leads todysfunction.

24. TwaddleTendency

Basically, spending too much time onnonsense.

25. Use-It-or-Lose-ItTendency

Too many learn a skill to simply cram for atest or presentation instead of trying toactually understand it fluently.

Charlie Munger 25 Cognitive BiasesStudy online at quizlet.com/_12gtd3