The goal of this article

The goal of this article is to 1) distill Charlie Munger’s 25 psychological tendencies into actionable takeaways to 2) increase the likelihood you/we practice them, so that 3) we make fewer errors, and 4) as a result we lead happier, more successful lives.

Who is Charlie Munger?

Charlie Munger is an American billionaire investor, businessman, former real estate attorney, architectural designer, and philanthropist. He is vice chairman of Berkshire Hathaway where he is the closest partner and right-hand man of Warren Buffett.

Together they’ve built Berkshire Hathaway into a powerhouse with $250 billion in revenue and a market cap of $647 billion (as of 8/22/21). Buffett has a net worth of $104 billion; Munger is doing alright too at $2.2 billion.

Munger is generally admired for his clear, rational, cross-discipline thinking which has attracted a generation of philosophical students including Naval Ravikant, Tim Ferriss, Shane Parrish (who’s website Farnam Street was largely inspired by Munger), and many others, including myself.

Avoiding avoidable mistakes

This article was inspired by a PDF I found on Hacker News that captures an obscure speech Charlie Munger gave. The topic? Psychology, or more formally: The Psychology of Human Misjudgment (original credit: fs.blog).

Charlie Munger, like Buffett, attributes much of his success to avoiding avoidable mistakes:

“I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.”
“I have succeeded mostly by restricting action to jobs and methods in which I was unlikely to fail.”

His speech/essay highlights 25 psychological tendencies that cause avoidable mistakes.

Why this is hard

Our psychological tendencies are, as Munger aptly describes, “often wrong but generally useful.” Improving our thinking patterns is hard because the battle is against our very nature. And while most everyone desires success, our brains betray good judgment—often subconsciously—resulting in harmful errors. To avoid these errors, we must be willing to look in the mirror and be ruthlessly honest.

25 psychological tendencies

Let’s start with a succinct definition of each of Munger’s 25 psychological tendencies. For every five you read, I will reward you with a picture of a special cat. Let’s get to it.

1. Reward/punishment superresponse: our behavior is profoundly influenced by incentives. Even if we appreciate the “incentive superpower” via reward or punishment, Munger suggests we are likely still underestimating it.

Takeaway: the #1 rule in management is “get the incentives right.” If you own someone’s compensation plan (especially sales/GTM roles), realize that comp is likely the #1 driver of behavior. Obsess over it. Also: dread rewarding people for what can be easily faked, e.g. SPIFs that can be gamed.

2. Liking/loving: when we like or love someone or something, our affection deceives us. The proverbial “rose-colored glasses” cause us to “ignore faults of, and comply with the wishes of, the object of our affection.” We’ll even distort the facts to facilitate love.

Takeaway: if you’re lucky enough to have professional friends, realize that your affection for them is likely clouding your ability to objectively assess their competency. Seek and overweight outside opinions.

3. Dislike/hating: when we dislike or hate someone or something, our resentment deceives us. We tend to ignore virtues of the object of dislike, and even distort the facts to facilitate hatred.

Takeaway: consider a competitor you dislike, and realize you’re inclined to discount their strengths. What is the counter-argument? What is your competitor good at? This could also be applied to an unfavorable coworker.

4. Doubt avoidance: humans are hard-wired to quickly remove doubt by reaching some decision. Doubt is uncomfortable, so we tend to eliminate doubt by jumping to conclusions or decisions. We’d rather take certain action than endure prolonged ambiguity, especially if we are confused or stressed.

Takeaway: for type 1 decisions, leaders must define a decision-making process. Full stop.

5. Inconsistency avoidance: a stubborn reluctance to change our minds, especially when it comes to our previous conclusions, loyalties, reputational identity, and commitments. When combined with doubt avoidance, this “anti-change mode” tendency can lead to an unexamined, foolishly consistent, disastrous life.

Takeaway: opportunity for introspection. Upon what grounds have you staked your identity? Is it serving you? Have you achieved what you wanted to by this age? What small habits are holding you back?

6. Curiosity: this tendency “much helps man to prevent or reduce bad consequences arising from other psychological tendencies.” Curiosity compels a lifelong quest for knowledge, wisdom, and fun! Lack of curiosity—or indifference—reduces the aperture of our potential.

7. Kantian fairness: humans display, and expect from others, a lot of fairness. Immanuel Kant (1724-1804), a contemporary of David Hume (1711-1776), suggested we all have a duty—a moral obligation—to act with pure intentions. This “golden rule,” according to Munger, is an observable human tendency.

8. Envy/jealousy: we often want what others have. Munger credits Buffett for saying: “it is not greed that drives the world, but envy.” Though somewhat taboo in modern culture, Munger suggests envy is an evolutionary vestige of coveting ever-scarce food in possession of others. Nowadays: it’s a Tesla.

9. Reciprocation: an automatic tendency to give what we get—be it favor or disfavor. With parallels to game theory, reciprocation can be incredibly beneficial in interpersonal relationships when induced by goodwill (it’s easier to trust by default). Friendship and marriage rely on it. However, when it comes to survival of a species or civilization, the majority of reciprocation is incredibly hostile.

10. Influence from mere association: this pervasive tendency causes us to over- or under-value people or things due to the undue influence of meta tags (associations) our brain has appended to the object. This tendency is particularly damaging when we accidentally associate something to our past success (read: fundamental attribution error). This tendency also manifests in “kill the messenger” behavior and stereotypes. The takeaway: cognitive associations cloud our objectivity.

11. Simple, pain-avoiding denial: when reality is too painful or uncomfortable to deal with, we have a tendency to distort the facts until they become bearable, e.g. death, love, addiction.

12. Excessive self-regard: in a word, overconfidence. A prideful tendency to drastically over-appraise anything that enters the aura of self: our skills, children, possessions, opinions, self-picked lottery numbers, decisions—all are considered better than they objectively are by sheer virtue of them being ours. In the workplace, this tendency can cause 1) dreadful hiring consequences by overvaluing face-to-face interactions (vs. past performance), and 2) employees make excuses for their fixable poor performance.

13. Overoptimism: an inherent preference for the possible over the probable.

14. Deprival superreaction: an irrational, intense reaction to a loss—perceived or real; small or large—of love, property, friendship, opportunity or status.

15. Social proof: “monkey-see, monkey-do.” An automatic tendency to “think and act as he sees others around him thinking and acting,” especially in the presence of confusion or stress. Social proof can also be conducive to inaction resulting in widespread corruption, passive boards of directors, etc.

16. Contrast misreaction: our senses tend to perceive things in relative terms vs. absolute which results in a misguided game of comparison, e.g. we overpay for something because it seems like a “good deal” compared to worse options available. Munger cautions us: “Few psychological tendencies do more damage to correct thinking”—especially when we’re blinded to our own bad habits which, in isolation, lack contrast. One candy bar a day doesn’t seem very significant, but the impact compounds, e.g. 74% of Americans are overweight (source: CDC), etc.

17. Stress influence: an adrenaline-induced state in which our reactions are typically quick and extreme; judgment is impaired.

18. Availability misweighing: tendency to overweight or overvalue what is easily available to us, especially vivid stories or facts—which are more memorable, and therefore more available in our mental repertoire. They should be discounted, heavily. See also: narrative fallacy.

19. Use it or lose it: skills are like muscles in that they atrophy with disuse; being fluent in a skill buys you a quicker recovery. In order to maintain our garden of knowledge, we must work daily to prune and practice each and every skill.

20. Drug misinfluence: addiction to drugs is a known destructive force to physical and mental health; cognition is severely impacted. Closely related to tendency #11.

21. Senescence misinfluence: old age eventually invites cognitive decay and limits ability to learn new skills later in life.

22. Authority misinfluence: tendency to blindly follow the leader, even when their leadership is misguided, foolish, unethical or misinterpreted.

23. Twaddle: our ability to blather on about things which introduces “noise”—both literally and figuratively—while reducing signal. This trivial, foolish or nonsensical communication further muddies the waters of clear thinking.

24. Reason respecting: “a conditioned reflex based on the widespread appreciation of the importance of reasons.” At its core, this tendency is an assumption: “they’ve shared their reasoning, so they must be right.”

25. Lallapalooza: similar to how waves can combine to create bigger waves, psychological tendencies can combine to amplify the overall effect. For example, a seemingly well-reasoned authority figure applying stress to older person (4 psychological tendencies in play) can cause extreme results. Lallapalooza tendency is Munger’s catch-all to describe the psychological complexity.

The influence of Influence

In a rare stint of effusiveness, Munger reveals his affection for Robert Cialdini’s book Influence. Munger has given this book to all family members and close friends. Of Munger’s 25 psychological tendencies above, #2 (liking/loving), #5 (inconsistency avoidance), #9 (reciprocation), #15 (social proof), and #22 (authority misinfluence) were borrowed from Cialdini.

Interestingly, Cialdini’s principle of scarcity is NOT part of the Munger’s psychological tendencies, perhaps because he considers it so intrinsic to economics (?).

The Charlie Munger operating system