Charlie’s Ants and the Power of Incentives

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Charlie Munger, financier, polymath and co-chairman of Berkshire Hathaway, teaches the power of incentives in understanding human behavior:

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Q1 2020 hedge fund letters, conferences and more

The Power Of Incentives

“The iron rule of nature is: you get what you reward

for. If you want ants to come, you put sugar on the

floor.”

Charlie’s favorite case-example of incentive-based behavior is Federal Express.

Federal Express management could not convince workers to deliver packages “overnight,” as promised in company ads. Moral suasion did not work.

What did work?

Incentives.

Pay workers to get the job done and not by the shift and deliveries appeared “overnight”.

Yet we think ourselves “The Moral Animal”.

Are we?

Oliver Wendell Holmes taught a legal lesson about the roots of morality from the animal world:

“Even a dog knows the difference between being kicked

or stumbled over.”

Dogs make no moral judgments but know how they are treated and respond accordingly.

Dog morality may be more steadfast than our own.

In Washington D.C. there is a well-worn maxim:

“If you want a friend, get a dog.”

To know our hearts, look to incentives, not laws or lawmakers.

Always remember we enact laws against bad things people want to do.

Why else would crime movies and books be so popular?

In the modern world money might seem to “make the world go ‘round.”

But there are human incentives that cannot be denominated in currency.

Currency, like law, is only a few thousand years old: a nanosecond in evolutionary time.

Centuries ago a poet of the Court of England proclaimed, “Let me make the ballads of a nation and I care not who makes its laws.”

If ballads bespeak our nature better than morals and money, let’s begin with a latter-day ballad from a Sci-Fi evergreen, “Back to the Future.”

"The Power of Love"

So many types of love, as Cole Porter wrote.

Romantic love.

Familial love.

Love of country or tribe.

Love of learning and science.

Love of God.

The plot of “Back to the Future,” turns on a fantastic technology—time travel—but the story and the theme are “The Power of Love”:

Love of a boy for a girl;

A boy for his family;

A scientist for his work and his protégé and metaphorical son;

A protégé for his mentor and metaphorical father:

“It’s strong and it’s sudden and it’s cruel sometimes

But it just might save your life

That’s the Power of Love”

Love is what Charlie Munger calls a “Superpower” in motivation.

It is the reason we are all, each of us, conceived and born, something for which we live and die.

Thus it blooms in the greatest adversity, against law, rule, doctrine and, even, hate.

To that point:

A Holocaust Story From A Jewish ghetto set up by Germans in Nazi-occupied Poland

An elderly Jew owned a house outside the ghetto, now confiscated. He was dying.

His deathbed wish was that his friends, a young tailor and a beautiful girl, retrieve the gold coins he had buried in the yard of his former house.

But no Jew could leave the ghetto under pain of death.

As strange as it may sound, an SS man stationed in the ghetto was passionately in love with this beautiful girl and she with him, a forbidden love, also punishable by death.

But with gold the lovers might escape incognito and run away together.

The SS man dug up the coins and shared them with the girl and the tailor.

But the lovers were caught.

The girl was shot.

Her lover sentenced to military prison.

Neither betrayed the tailor.

The tailor covered his coins with cloth and fashioned them into buttons which he sewed onto his jacket.

And with those golden buttons the tailor survived the Holocaust.

I know the story is true because it has no heroes, love is the incentive and the tailor was my father.

Pride, Prejudice And Vindictive Triumph

At the 2011 White House Correspondents’ Association dinner President Barack Obama seized an opportunity to deftly skewer guest Donald Trump, a popular entrepreneur and television personality.

Trump had been championing the “birther movement,” claiming Obama was not born in this country and his presidency was illegitimate, a patently false but damaging claim.

When Obama finished skewering Trump, comedian Seth Meyers stepped in for the coup de grace, terming Trump’s threatened run for the presidency, “a joke.”

Trump was polite but left promptly and assured reporters he had had a good time.

In the opinion of many, including writers for The New York Times and The New Yorker Magazine, Obama unknowingly planted the seed for Trump’s vindictive triumph: his successful run for the presidency in 2016 and his continuing denigration of all things Obama.

While Trump has always denied he resolved to run that night, despite longstanding tradition Trump has never attended another Correspondents’ dinner.

And the White House Correspondents’ Association dinner has never been the same.

How many stars of our era were once ridiculed and tormented?

Frank Sinatra, small and skinny, fought bullies on the streets of Hoboken and never backed down.

Barbra Streisand’s stepfather told her she was too ugly for ice cream. Yet the camera came to love her.

Adversity, even cruelty, can bring forth the best of which we are capable.

Fear Of Loss And Disaster

But not everyone is so resilient.

As Charlie Munger teaches, “Life will have terrible blows in it, horrible blows, unfair blows” and some of us rebound and others succumb, retreat into fear, paranoia and the nursing of grievances, all instinctual but overrated.

Charlie admonishes us to follow the advice of the Greek slave-philosopher, Epictetus, and “utilize the terrible blow in a constructive fashion.”

A terrible blow to us all, the present pandemic, has given rise to an invaluable epigram:

“Don’t touch your face or your 401K.”

All primates touch their faces. When the zoos reopen, watch the monkeys.

It is one of many reasons to mask during the pandemic—and to wash our hands.

But handwashing is not intuitive and must be taught.

Ignaz Semmelweis, MD, a nineteenth century Hungarian physician, begged the surgeons of Vienna in vain to wash their hands before deliveries and thereby reduce childbirth mortality.

The surgeons ignored him, though expectant mothers of that era preferred to give birth with the nuns and midwives who were fastidiously clean.

Semmelweis died of sepsis in a madhouse, beaten by guards.

Washing, gowning, masking and gloving are, of course, now sacrosanct in surgery.

Today there is a statue of Semmelweis at the University of Vienna.

As for the 401K many shareholders are not as adaptive as surgeons.

So often their first instinct in a market plunge is to sell and preserve what little is left, as though running from a fire or flood.

And unto this day old market hands hold fast in crashes as novices cling to the proceeds of unwise sales.

And those same shares blossom in the next market spring.

Addiction: Solvent Of Love

Romantic love and familial love may be stronger than hate.

But they are not stronger than addiction, solvent of love.

As comedian and recovering addict, Sarge, says:

“A thief will steal your watch. An addict will help you look for it.”

Addicted children steal from their parents.

Addicted parents steal from their children.

“My son/daughter/mother/wife/husband/father would never do that!”

If they are addicts, they will.

Addicts can deny and rationalize anything in service of addiction.

The late, great comedian Richard Pryor, another recovering addict, brilliantly portrayed a heroin addict remonstrating about his father:

“My father say he don’t want to see me in the vicinity.

Just ‘cause I stole his television.”

In recovery—awakening from addiction and its consequences--addicts may perform great, heroic and generous acts of love, for each other and for others.

And how do they awaken?

Through twelve-step programs—Alcoholics Anonymous, Narcotics Anonymous and others--all based in love of God.

That is a reality.

For believers and nonbelievers alike.

It does nothing to prove or disprove the existence of a deity.

But it reminds us that belief in and love of God can be the most powerful incentive of all.