25 Biases

Question 1

Reward and Punishment Super-response Tendency

Answer 1

In Munger’s experience, people tend to be most motivated by incentives; especially by the right rewards. B​y understanding incentives, you can more effectively:
● Influence Others.​ Want to get an individual or a team to do something? Munger says you need to answer this question correctly: “What’s in it for them?”
● Protect Yourself From Bad Advice. M​unger cautions us to be careful of professional advice that might be shaped by the advisor’s personal interest.
● Influence Yourself.​ By understanding what really drives you, you can drive yourself.

The power that incentives and disincentives have on the actions of others cannot be overstated. Munger says this should be obvious but so many people don’t understand the how important incentives are for shaping people’s motivation to complete a task.

Question 2

Liking/Loving Tendency

Answer 2

Munger argues that we are wired to naturally favor people we like and love to the point of irrationality. I​n social psychology, this tendency is known as
i​n­group bias.​

In order to keep liking and loving them, we do the following behaviors that we may not have done otherwise:

● Distort facts
● Ignore faults
● Comply with wishes
● Favor people, products, and actions merely associated with the object of affection.

We even go to great lengths in order to keep being liked and loved by others; even people we don’t know.
We ignore the faults of other people, products or companies that we admire.

Question 3

Disliking/Hating Tendency

Answer 3

The opposite of the liking/loving tendency is also true. We tend to disfavor people we already dislike and hate to level of irrationality. This results in:

● Ignoring virtues of people we dislike.
● Disliking people, products, and actions merely associated with the object of our dislike.
● Distorting facts in order to facilitate the hatred.

We also ignore the virtues of those things we dislike and distort the facts to facilitate that hatred while putting on blinders to other options and opinions.

Question 4

Doubt-Avoidance Tendency

Answer 4

The human brain has evolved to resolve open issues (i.e., c​ognitive dissonance)​ by making decisions.

Part of our speedy decision making process comes at a price: we eliminate any potential doubts, which might cause us to make mistakes.

What normally triggers the tendency is some combination of:

1. Puzzlement
2. Stress

If we are unsure about a decision we try to quickly remove any doubt by making an ill-informed, quick decision.

Question 5

Inconsistency-Avoidance Tendency

Answer 5

We rarely do things that are inconsistent with our identity, beliefs, and habits. To save energy, we are often reluctant to change our habits, especially bad ones. Such bad habits include biased thinking patterns. These patterns lead to cognitive errors, limiting our choice of actions in life.

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

Question 6

Curiosity Tendency

Answer 6

Munger argues that curiosity not only counters the negative effects of our psychological tendencies, it also lets us enjoy the process of learning and acquiring knowledge.

There is not enough curiosity to learn, even though you receive so many benefits from a continuous learning process. Munger says, “the curious are also provided with much fun and wisdom once formal education has ended.”

Question 7

Kantian Fairness Tendency

Answer 7

Citing Kant and his categorical imperative, Munger argues that “​reciprocal courtesy”​is a societal norm, at least in United States. When we are not treated fairly, often we become very angry and/or frustrated.

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. The example Munger uses is letting in other drivers on the freeway knowing they will reciprocate in the future. The Kantian Fairness Tendency refers to the pursuit of perfect fairness which causes a lot of terrible problems. Stop expecting the world to be fair and adjust your behavior accordingly.

Question 8

Envy/Jealousy Tendency

Answer 8

Munger points how out our evolutionary desire to own others’ possessions leads to worse situations like hatred, fights and so on. Abraham Tesser’s a​cademic research​on the Self­Evaluation Model counterintuitively shows that our self­esteem suffers and therefore, feel the most jealous of other people when they’re:
● Close to us (ie ­ sibling, friend)
● Outcompeting us in areas that are important to us

Self-explanatory, but Munger makes an interesting point that envy and jealously are surprisingly absent from most psych textbooks.

Question 9

Reciprocation Tendency

Answer 9

We are wired to reciprocate. If people give to us, we feel we owe the other person. Similar to the fairness tendency, if someone hurts us, we feel the need to hurt them back.
Companies can use this approach to:
● Start a relationship by giving something, even if it’s small.
● Negotiate by asking for something big and unrealistic at first, and then when the person says no, ask for something that is smaller that is the ultimate thing you wanted anyway. In an experiment performed by Robert Cialdini, this approach was incredibly effective.
● Use the ‘foot in the door’ technique (a.k.a., F​ranklin Effect)​by asking for something small that everyone will say yes to and then increase the sizes of the asks.

We tend to want to return the favor when someone helps us, which can be a good thing at times, but it can also lead to poor decisions if you reciprocate business deals based on these minor favors.

Question 10

Influence-From-Mere-Association Tendency

Answer 10

We perceive people or things differently depending on who/what they are associated with. Advertisers have long understood this. They link their products to things that will trigger the responses they want you to have. This is also known as c​lassical conditioning.​
Sometimes when people receive a favor when they’re in pain (poor, sick, etc.), they associate the person that gave them the favor with the pain. As a result, the favor just reinforces the pain.
If we link a past event where we got lucky to skill rather than luck, then we will make poor choices about the future.”

We can be easily manipulated by mere association. It can be a group of people, the quality of a product, advertising, etc.

Question 11

Simple, Pain-Avoiding Psychological Denial

Answer 11

We tend to distort facts for our own psychological comfort. This psychological discomfort is known as c​ognitive dissonance.​

If we make a habit of continually avoiding information that is painful, we’ll not only develop a distorted view of reality, we’ll train other people not to tell us the truth.

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

Question 12

Excessive Self-Regard Tendency

Answer 12

We are overconfident ­ thinking we’re better than the average person. Several studies of self­perception, show that for any given trait, more than 50% of people think they’re above average ­ from unsophisticated computer users who think t​hey are cyber crime experts,​to Harvard Business School students who think that t​hey are better looking than everyone else.​ This is known as the E​ndowment Effect.​Being overconfident can lead to many shortcomings; for example, overconfident students d​o significantly poorer on tests.​
The result of this is overappraising things we own, decisions we make, and people like us underappraising things that challenge our self­regard.

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

Question 13

Over-Optimism Tendency

Answer 13

We tend to be foolishly optimistic without calculating the risks. In anticipation of good future outcomes ­and how much control we have over them ­we o​verestimate how much control we have over them.​

Neuroscientist Tali Sharot’s research suggests that the optimism bias has evolved to become an integral part of the human psyche,​ regardless of one’s race, gender and nationality.​

Two sobering examples are we are over­optimistic regarding how fast we can pay off our student debt,​ or how well we can use o​ur driving skills.​

Lottery ticket mentality.

Question 14

Deprival-Superreaction Tendency

Answer 14

We tend to intensely react to any real loss or potential loss irrationally.​ This explains in­fighting that occurs within bureaucracies.

Loss aversion. Loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are twice as powerful, psychologically, as gains.

Question 15

Social-Proof Tendency

Answer 15

We are wired to make a huge number of decisions in our life based purely on other people’s actions. The effect is so strong that even if we are surrounded by a small group of people who insist that blue is green, then w​e’ll question our own reality.​

Entrepreneurs who create public social proof of their product (i.e. positive customer reviews) get more sales.​

This is when we tend to think and act like those around us. It’s the herd mentality.

Question 16

Contrast-Misreaction Tendency

Answer 16

Our conscious mind is limited. Therefore, we can’t register every detail that we see, hear, feel, taste, and smell in every moment.

Our brain unconsciously makes choices about where our attention flows. One of the ways that it makes this decision is by sudden change. If we hear a loud sound all of a sudden, our attention immediately goes there.

This same principle applies to the world of value. We don’t measure the value of things in a vacuum. We often notice value by contrasting it with something else. Retailers take advantage of this by attaching an artificially high price to their product and then providing a significant discount.

Our problem here is a misunderstanding of comparisons and missing out on the magnitude of decisions. This gets to Phillip 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 and objects by themselves and not by their contrast.

Question 17

Stress-Influence Tendency

Answer 17

Some stress helps us focus, but too much destroys our decision making capabilities. Therefore, we must learn how to manage stress in situations, so that we make the best decisions possible.

Adrenaline tends to produce faster and more extreme reactions. Some stress can improve performance but heavy stress often leads to dysfunction.

Question 18

Availability-Misweighing Tendency

Answer 18

We tend to overemphasize information that is the most available and vivid from our surroundings and our mind. In the academic world, this is known as the A​vailability Bias.​ Unfortunately, The easiness doesn’t mean that the information is the most useful one.
This can work to people’s benefit in the world of persuasion and memory. By painting a vivid picture of something, we can more effectively influence others and keep ideas in our own memories.
When in group environments, simple explanations of complex phenomena can rapidly gain currency and spread even if they’re wrong. This is known as the availability cascade.​

We overweight what’s easily available. A checklist or set of rules can help with this tendency.

Question 19

Use-It-or-Lose-It Tendency

Answer 19

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

Question 20

Drug-Misinfluence Tendency

Answer 20

Impaired judgment due to drugs

Question 21

Senescence-Misinfluence Tendency

Answer 21

As we age there is a natural loss of certain skills and abilities. Continuous thinking and learning helps to slow the decay.

Question 22

Authority-Misinfluence Tendency

Answer 22

We trust and respect leaders too much, even when they make mistakes.
We also trust leaders in areas where they are not experts. This is known as the H​alo Effect.​

Following orders just because someone says so.

Question 23

Twaddle Tendency

Answer 23

People tend to talk a lot about things they’re not an expert in. Be very careful of these people.
Instead, try to surround yourself with people who show restraint in sharing their opinions until they’re more proven or thought through.

Basically, spending too much time on nonsense.

Question 24

Reason-Respecting Tendency

Answer 24

Before doing things, we love to have reasons. Therefore, when delegating things to other people, be sure to share the reasons why the task is important.

In a f​amous study​ by researcher, Ellen Langer, she showed that when asking for a favor from a stranger, simply giving a reason for the request, even if it’s artificial, greatly increases the odds of the person complying.

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

Question 25

Lollapalooza Effect/Tedency

Answer 25

Lollapalooza Tendency is the tendency to get extreme consequences from confluences of psychological tendencies acting in favor of a particular outcome. Although it is lasted last here, Munger counts it as one of the most important.
This tendency works in one of two ways:
● Effects bolster each other.​In the famous Milgram experiments at Stanford, test subjects devolved into terrible behavior in just a few days as a result of six tendencies being triggered at once. In Munger’s experience, when you combine two forces together, you don’t get simple addition, you get a nuclear explosion.
● Effects cancel each other out. A​s companies grow, they get benefits (i.e.­economies of scale) and disadvantages (i.e.­ beauracracy).
By understanding all of the biases a​nd h​ow they relate to each other, you will have a huge advantage in your life.

To get extreme consequences when you combine a number of these misjudgements when trying for a particular outcome.