The greatest brain boost you will ever receive is free of side effects and non-toxic — except to the misperceptions crowding your mind for years. No drug, supplement or treatment, the boost is a tour de force lecture on the misfunctions of the human mind, delivered by Charles T. (Charlie) Munger, the legendary co-chairman of Berkshire Hathaway.
Many value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More
Charlie may not be a psychiatrist, psychologist or neuroscientist, but the lawyer, polymath, financier and partner of Warren Buffett’s is a master student of the evolved misperceptions of our species. In June 1995, he presented his talk, "The Psychology of Human Misjudgment," at Harvard University. If you have never listened to this brilliant presentation or read any of its many transcriptions, there is a mind-blowing experience in store for you.
Charlie enumerated twenty-five human tendencies to misjudgment. Here are four teasers:
“The human mind is like the human egg.” Charlie reminds us that only a single human sperm can enter the human egg. Likewise, the first idea to reach our ears is the one that sticks in our minds. True or false, it then closes our minds to contrary ideas — even if the later ones are, as one might expect, more nuanced, complete, accurate and insightful.
It is street wisdom that the first one to call the cops is more likely to be believed, even if they are lying. The first press reports of Marilyn Monroe’s “suicide” by overdose are widely believed to this day, despite the fact that her autopsy revealed a GI tract devoid of capsule residue, and a lower colon discolored purple by an unidentified substance. Unidentified because all tissue samples were subsequently “lost” — something that virtually never happens in a medical examiner’s office. (Full disclosure: I worked as a medical student in medical examiners’ offices.)
“So the dog salivated when the bell rang. So what?” Charlie knows we all remember Pavlov’s dog from high school. But what we don’t realize is that simple associations — like the bell and the food — run riot in our own minds. Charlie assures us that the ancient Persians really did kill those messengers who brought bad news. Simple Pavlovian association!
On the morning of 9/11, I was attending physician in a psychiatric hospital. A technician ran up to me and urged me into the TV room; a plane had just hit one of the Twin Towers. Then he caught himself and thought aloud, “Oh, no. Now you will always remember me for this!” And I do, to this day – better than I remember the Family Center in Manhattan, where my coworkers and I gave psychiatric care to survivors.
“It is so easy to be a patsy …” Charlie warns us of to beware those sales techniques that rely upon our evolved tendency to reciprocate kindness. Unreciprocated kindness provokes guilt, an unpleasant feeling. Repaying seeming kindness feels good.
So when a “gift” arrives from a salesperson or rep, such as a cup of coffee or a company pen, don’t accept it. Your unconscious urge to reciprocate can easily sway your judgment, and you’ll involuntarily “return the favor” without even knowing it. Drug company gifts for physicians have been banned for good reason.
“Bias from liking distortion … and the tendency not to learn appropriately from someone disliked.” Charlie knows we are wired to like our own kind and fear a stranger, especially an odd one. At its worst it is prejudice, but even at its best it can skew our judgment and cost us in wisdom. At long last I am no longer shocked when a likeable colleague pulls a fast one, or when someone I don’t admire teaches me a valuable lesson. I recall a chemistry professor, who clearly did not like me or anyone like me, saying, “I am giving you this A, but you are not going to medical school.”
Now, having proven this professor wrong, I prefer to remember his teachings with gratitude. And I always recall his sage advice: When confronted with a counterintuitive practice that works, “do it yourself and prove it to yourself.” Might this practical wisdom from a scientist, rationally applied, convince you that low-cost index funds really work? It did for me.
Charlie Munger may be a billionaire investor, but his true calling is scholarly. So he lovingly broadened and expanded his lecture into a published paper. It is now archived at the University of Indiana, and available free as a pdf here.
If "The Psychology of Human Misjudgment" whets your appetite for further wisdom from Charlie — beyond the the interviews, addresses and quotations available on the web — then order Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, edited and annotated by his friend, Peter D. Kaufman, and lavishly illustrated in color. It is the best sixty dollars you will ever spend. As if Charlie were not already generous enough with his wisdom, all proceeds from Poor Charlie’s Almanac go to charity.