Charlie Munger 25 Cognitive Biases

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1.   Authority- Following orders just because someone 12. Influence-  We can be easily manipulated by mere mere
Misinfluence says so. From-Mere- association. It can be a group of people, the
Tendency   Associati on quality of a prod
product,
uct, advertising
advertising,, etc.
Tendency 
2.   Availability-  We overweigh
overweightt what's eas ily availa ble. A 
Misweighing checklist or set of rules can help with this 13. Kantian Life isn't fair, but many can't accept this.
Tendency  tendency. Fairness Tolerating a little unfairness should be okay 
Tendency  if it means a greater fairness for all. The
3.   Contrast- Our problem
problem here is a misunder
misunderstanding
standing
example Munger uses uses is lett
letting
ing in other
Misreaction of comparisons and missing out on the drivers on the freeway knowing they will
Tendency  magnitude of decisions. This gets to
reciprocate in the future.
Phillip Fisher's point when he once s aid,
"the stock market is filled with individ
in dividuals
uals 14. Liking/Loving  We ignore the faults
faults of other people,
people,
 who know
kn ow the price of everyt
everything
hing but the Tendency  products
products or companies that we admire.
 value of nothing
nothing ." Evaluate
Evaluate people
people and
15.  Lollapalooza To get extreme
extreme consequences when
wh en you
objects by themselves
themselves and not
no t by their
Effect/Tedency  combine a number of these misjudgements
contrast.
 when trying for a particular
particular outcome.
outcome.
4.   Curiosity  There is not enough curiosity to learn,
16. Over- Greed.
Tendency  even though you receive so many benefits
Optimism
from a continuous learning process.
Tendency 
Munger says, "the curious are also
provided
provided with much fun and
an d wisdom
wis dom once 17. Reason- Some people
people just want the answers,
ans wers, not
n ot the
formal education
education h as ended
ended."
." Respecting reasons or a better understanding.
understanding.

5.   Deprival- Loss aversion. Loss aversion refers to Tendency 

Superreaction people's tendency to strongly prefer 18. Reciprocation  We tend
tend to want to ret
return
urn the
the favor when
Tendency  avoiding
avoiding loss es to acquiring
acquiring gains . Most Tendency  someone
some one helps us, which ca n be a good
studies suggest that losses are twice as thing at times, but it can also lead to poor
powerful,
power ful, psychologically,
psychologically, a s ga ins. decisions if you reciprocate
reciprocate business
business deals
 based on these minor
minor favors.
6.   Disliking/Hating  We also ignore
i gnore the virtu
virtues
es of those things
Tendency   we dislike and distort the
the facts to facilitate 19. Reward
and The power that incentives and
a nd disincentives
that hatre
ha tred
d while
whi le putting
putting on blinders to Punishment have on the actions of others cannot be
other options and opinions. Super- overstated.
over stated. Munger says this should be
response obvious but so many people don't
7.   Doubt- If we are
a re unsure about a decision
decisio n we
w e try to
to
Tendency  understand
unde rstand the h ow import
important
ant incentives
i ncentives
 Avoidance quickly remove
remove any
an y doubt
doubt by making an
are for shaping
sha ping people's motivation
motivation to
Tendency  ill-informed, quick decision.
completee a task.
complet
8.   Drug- Impaired judgment due to drugs
20. Senescence-  As we ag e there
there is a natural loss of certain
certain
Misinfluence
Misinfluence skills and abilities. Continuous
Continuous thinking
Tendency 
Tendency  and learning helps to slow the decay.
9.   Envy/Jealousy  Self-explanatory, but Munger
Munger makes a n
21. Simple,
Pain-  We have a habit of distorting
distorting the facts until
Tendency  interesting
interesting point that envy and jealously 
 Avoiding they become
become bearable for our own views.
are surprisingly a bsent from most psych
Psychological
textbooks.
Denial
10. Excessive Self-  We all think
thin k we're above average. This is
is
22. Social-Proof  This is when we tend to think and act like
Regard  where overconfidence
overconfidence comes
comes from.
Tendency  those around us. It's the herd mentality.
Tendency  Munger says the greatest type of pride
should be taking prid
pridee in being 23. Stress-  Adrenaline tends
tends to produce
produce faster and more
more
trustworthy
trustworthy to avoid developing an ego. Influence extreme
extreme reactions. Some stress
stress can improv
improvee
Tendency  performance but heavy stress often leads to
11. Inconsistency-  We have a reluctance
reluctance to chang e.
dysfunction.
 Avoidance Eliminating bad habits is a rare trait.
Tendency  24. Twaddle Basically, spending too much time on
Tendency  nonsense.
25. Use-It-or- Too many learn a skill to simply cram for a
Lose-It test or presentation instead of trying to
Tendency  actually understand it fluently.