Book notes: “Poor Charlie’s Almanack” by Charlie Munger
(LM → my personal comments)
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“I am a biography nut myself. And I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, ‘but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It’s way better than just giving the basic concepts.”
LM: read/listen to biographies
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To him [Cicero], pride in a job well done is vastly constructive. For instance, It motivates good conduct in early life because, in remembrance, you can make yourself happier when old. In which, aided by modern knowledge, I would add “and, besides, as you pat yourself on the back for behaving well, you will improve your future conduct.”
To Cicero it is unworthy that an old man would work to improve only what he would live to enjoy. For him the only life worth living is dedicated in substantial part to good outcomes one cannot possibly survive to see.
The most celebrated passage in de Senectude is probably the following grand summary: “The best Armour of Old Age is a well spent life preceding it; a Life employed in the Pursuit of useful Knowledge, in honorable Actions and the Practice of Virtue; in which he who labors to improve himself from his Youth, will in Age reap the happiest Fruits of them; not only because these never leave a Man, nor even in the extremist [sic] Old Age; but because a Conscience bearing Witness that our Life was well-spent, together with the Remembrance of past good Actions, yields an unspeakable Comfort to the Soul.”
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More pertinent to our purpose here, his models supply the analytical structure that enables him to reduce the inherent chaos and confusion of a complex investment problem into a clarified set of fundamentals. Especially important examples of these models include the redundancy/backup system model from engineering, the compound interest model from mathematics, the breakpoint/ tipping-moment/autocatalysis models from physics and chemistry, the modern Darwinian synthesis model from biology, and cognitive misjudgment models from psychology.
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Or in his own words, “What I’m against is being very confident and feeling that you know, for sure, that your particular action will do more good than harm. You’re dealing with highly complex systems wherein everything is interacting with everything else.”
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Mimicking the herd invites regression to the mean (merely average performance)
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More important than the will to win is the will to prepare.
Be alert for the arrival of luck
LM: positioning
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Determine value apart from price; progress apart from activity; wealth apart from size
LM: value !== price
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“Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
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Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
LM: Apply first principles thinking. Stop wishful thinking.
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‘I’m right, and you’re smart, and sooner or later you’ll see I’m right.”’
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‘If you tell the truth, you don’t have to remember your lies.”
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It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
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The reason we avoid the word “synergy” is because people generally claim more synergistic benefits than will come. Yes, it exists, but there are so many false promises. Berkshire is full of synergies-we don’t avoid synergies, just claims of synergies.
LM: in the markets, be aware of the synergy discourse.
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Time allocation
Charlie realizes that it is difficult to find something that is really good. So, if you say ‘No’ ninety percent of the time, you’re not missing much in the world.
a thing not worth doing is not worth doing well
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I think that, every time you see the word EBITDA [earnings before interest, taxes, depreciation, and amortization, you should substitute the words “bullshit earnings.”
If you carry bushel baskets full of money through the ghetto, and made it easy to steal, that would be a considerable human sin because you’d be causing a lot of bad behavior, and the bad behavior would spread. Similarly, an institution that uses sloppy accounting commits a real human sin, and it’s also a dumb way to do business.
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A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.
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If you’re comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what?! Someone will always be getting richer faster than you. This is not a tragedy.
The idea of caring that someone is making money faster [than you are] is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?
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We get these questions a lot from the enterprising young. It’s a very intelligent question; You look at some old guy who’s rich and you ask, “How can I become like you, except faster?”
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts…. Slug it out one inch at a time, day by day. At the end of the day-if you live long enough-most people get what they deserve.
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And the great useful model, after compound interest, is the elementary math of permutations and combinations. It’s not that hard to learn. What is hard is to get so you use it routinely almost every day of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And it’s a fundamental truth. So you simply have to have the technique.
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One of the advantages of a fellow like Buffett, whom I’ve worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.
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Just as you think better if you array knowledge on a bunch of models that are basically answers to the question, why, why, why, if you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply. Even if they don’t understand your reason, they’ll be more likely to comply.
LM: same thought as in How to win Friends and influence People
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And, of course, the engineering idea of a backup system is a very powerful idea.
The engineering idea of breakpoints is a very powerful model, too.
The notion of a critical mass-that comes out of physics-is a very powerful model.
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Personally, I’ve gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things, which, by and large, are useful but which often malfunction?
LM: two-track analysis Rational vs Subconscious
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Just as animals flourish in niches, similarly, people who specialize in the business world-and get very good because they specialize-frequently find good economics that they wouldn’t get any other way.
So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.
LM: positioning
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Moreover, Harvard and Yale may now need new displays of unconventional wisdom that are different from their last displays. It is quite counter-intuitive to decrease that part of one’s activity that has recently worked best. But this is often a good idea. And so also with reducing one’s perception of one’s needs, instead of increasing risks in an attempt to satisfy perceived needs.
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How do you and Warren evaluate an acquisition candidate?
“We’re light on financial yardsticks; we apply lots of subjective criteria: Can we trust management? Can it harm our reputation? What can go wrong? Do we understand the business? Does it require capital infusions to keep it going? What is the expected cash flow? We don’t expect linear growth; cyclicality is fine with us as long as the price is appropriate.
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What overall life advice do you have for young people?
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step-by-step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day-by-day, and at the end of the day-if you live long enough-like most people, you will get out of life what you deserve.
Life and its various passages can be hard, brutally hard. The three things I have found helpful in coping with its challenges are:
- Have low expectations.
- Have a sense of humor.
- Surround yourself with the love of friends and family.
Above all, live with change and adapt to it. If the world didn’t change, I’d still have a twelve handicap.”
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This is a very complicated system. And life is one damn relatedness after another . It’s all right to think that, on balance, you suspect that civilization is better if it lowers the minimum wage or raises it. Either position is OK. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker. So beware of ideology-based mental misfunctions.
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One of the things I’ve found eye-opening and a little surprising is how the difficulties of running a low-tech business and those of running a high-tech business aren’t all that different.
They’re all hard. But why should it be easy to get rich? In a competitive world, shouldn’t it be impossible for there to be an easy way for everybody to get rich? Of course. they’re all hard.
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In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke. You’ve made an enormous commitment to something. You’ve poured effort and money in. And the more you put in, the more that the whole consistency principle makes you think, “Now it has to work. If I put in just a little more, then it’ll work.”
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Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable-and some losses are inevitable-you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you.
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I sometimes tell my friends, “I’m doing the best I can. But I’ve never grown old before. I’m doing it for the first time. And I’m not sure that I’ll do it right.”
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Will such a super-gifted person instead choose academic psychology wherein lie very awkward realities: (A) that the tendencies demonstrated by social psychology paradoxically grow weaker as more people learn them, and, (B) that clinical (patient-treating) psychology has to deal with the awkward reality that happiness, physiologically measured, is often improved by believing things that are not true. The answer, I think, is plainly no. The super-mind will be repelled by academic psychology much as Nobel laureate physicist Max Planck was repelled by economics, wherein he saw problems that wouldn’t yield to his methods.
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I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart….
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As I revisit Talk Three in March of 2006,I still like its emphasis on the desirability of making human systems as cheating-proof as is practicable, even if this leaves some human misery unfixed. After all, the people who create rewarded cheating on a massive scale leave a trail of super-ruin in their wake, since the bad conduct spreads by example and is so very hard to reverse.
LM: Where are our current systems incentivizing bad behavior?
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It is usually best to simplify problems by deciding big “no-brainer” questions first.
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It is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so that he’d never go there. (invert, always invert)
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really big effects, lollapalooza effects, will often come only from large combinations of factors.
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powerful “monkey-see, monkey-do” aspect of human nature that psychologists often call “social proof.” Social proof, imitative consumption triggered by mere sight of consumption, will not only help induce trial of our beverage
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The Two-Track Analysis (from Pages 63 and 64):
What are the factors that really govern the interests involved, rationally considered? (for example, macro and micro-level economic factors).
What are the subconscious influences, where the brain at a subconscious level is automatically forming conclusions? (influences from instincts, emotions, cravings, and so on).
It is, of course, irritating that extra care in thinking is not all good but also introduces extra error. But most good things have undesired “side effects,” and thinking is no exception.
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I wish to say that I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests compared to other interests and compared to most other countries.
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I have never taken a single course in economics, nor tried to make a single dollar, ever, from foreseeing macroeconomic changes.
(2000) The “wealth effect” from rising U.S. stock prices is particularly interesting right now for two reasons. First, there has never been an advance so extreme in the price of widespread stock holdings and, with stock prices going up so much faster than GNP, the related “wealth effect” must now be bigger than was common before. And second, what has happened in Japan over roughly the last ten years has shaken up academic economics, as it obviously should, creating strong worries about recession from “wealth effects” in reverse.
One of the worst examples of what physics envy did to economics was cause adoption of hard-form efficient market theory. And then, when you logically derived consequences from this wrong theory, you would get conclusions such as it can never be correct for any corporation to buy its own stock. Because the stock price, by definition, is totally efficient, there could never be any advantage.
I want economics to pick up the basic ethos of hard science, the full attribution habit, but not the craving for an unattainable precision that comes from physics envy. The sort of precise, reliable formula that includes Boltzmann’s constant is not going to happen, by and large, in economics. Economics involves too complex a system.
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Extreme success is likely to be caused by some combination of the following factors:
- Extreme maximization or minimization of one or two variables. Example, Costco or our furniture and appliance store.
- Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little bit more mass, and you get a lollapalooza result.
- An extreme of good performance over many factors. Example, Toyota or Les Schwab.
- Catching and riding some sort of big wave. Example, Oracle.
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If you know the psychological factors, if you’ve got them on a checklist in your head, you just run down the factors, and, boom! you get to one that must explain this occurrence. There isn’t any other way to do it effectively.
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It is not always recognized that, to function best morality should sometimes appear unfair, like most worldly outcomes. The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. Thus, there can be virtue in apparent non-fairness. I frequently cite the example of having your career over, in the Navy, if your ship goes aground, even if it wasn’t your fault. I say the lack of justice for the one guy that wasn’t at fault is way more than made up by a greater justice for everybody when every captain of a ship always sweats blood to make sure the ship doesn’t go aground. Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you. But again, I wouldn’t put it in your assigned college work if you want to be graded well, particularly in a modern law school wherein there is usually an over-love of fairness-seeking process.
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Keynes said, “It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.” And Einstein said it better, attributing his mental success to “curiosity, concentration, perseverance, and self-criticism.” By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift.
What I’ve urged is the use of a bigger multidisciplinary bag of tricks, mastered to fluency, to help economics and everything else. And I also urged that people not be discouraged by irremovable complexity and paradox. It just adds more fun to the problems. My inspiration again is Keynes: Better roughly right than precisely wrong.
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What are the core ideas that helped me? Well, luckily I had the idea at a very early age that the safest way to try to get what you want is to try to deserve what you want.
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I have what I call an “iron prescription” that helps me keep sane when I drift toward preferring one intense ideology over another. I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.
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Perverse associations are also to be avoided. You particularly want to avoid working directly under somebody you don’t admire and don’t want to be like. It’s dangerous. We’re all subject to control to some extent by authority figures, particularly authority figures who are rewarding us.
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Wealth consists not in having great possessions, but in having few wants.
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Who wants to go through life anticipating trouble? Well, I did, trained as I was. I’ve gone through a long life anticipating trouble. And here I am now, well along in my 84th year. Like Epictetus I’ve had a favored life. It didn’t make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact it helped me.
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complex bureaucratic procedure does not represent the highest form civilization can reach. One higher form is a seamless, non-bureaucratic web of deserved trust. Not much fancy procedure, just totally reliable people correctly trusting one another.
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The physiology of human misjudgment
“…after many decades in which I have succeeded mostly by restricting action to jobs and methods in which I was unlikely to fail…”
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“I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes”
LM: Invert, always invert
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“Pure curiosity, somewhat later, made me wonder how and why destructive cults were often able, over a single long weekend, to turn many tolerably normal people into brainwashed zombies and there- after keep them in that state indefinitely. I resolved that I would eventually find a good answer to this cult question if I could do so by general reading and much musing.”
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When one thus sees perception so easily fooled by mere contrast, where a simple temperature gauge would make no error, and realizes that cognition mimics perception in being misled by mere contrast, he is well on the way toward understanding, not only how magicians fool one, but also how life will fool one.
LM: eg. Offering two offers of the same product at different price points. The lower price point product will feel cheaper to the consumer.
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…cognition is ordinarily situation-dependent so that different situations often cause different conclusions, even when the same person is thinking in the same general subject area.
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ONE: Reward and Punishment Superresponse Tendency
“If you would persuade, appeal to interest and not to reason.”
LM: Persuasion → interest > reason. What will the other people get?
Perhaps the most important rule in management is “Get the incentives right”.
With incentives, he could cause more behavior change, culminating in conditioned reflexes in his rats and pigeons, than he could in any other way. He made obvious the extreme stupidity, in dealing with children or employees, of rewarding behavior one didn’t want more of.
He demonstrated again and again a great recurring, generalized behavioral algorithm in nature: “Repeat behavior that works.”
He also demonstrated that prompt rewards worked much better than delayed rewards in changing and maintaining behavior .And, once his rats and pigeons had conditioned reflexes, caused by food rewards, he found what withdrawal pattern of rewards kept the reflexive behavior longest in place: random distribution
Widespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one’s professional advisor, even if he is an engineer. The general antidotes here are: (1) especially fear professional advice when it is especially good for the advisor; (2)learn and use the basic elements of your advisor’s trade as you deal with your advisor; and (3) double check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought.
Employer-installed antidotes include tough internal audit systems and severe public punishment for identified miscreants, as well as misbehavior-preventing routines and such machines as cash registers. From the employee’s point of view incentive-caused bias quite naturally causes opposing abuse from the employer: the sweatshop, the unsafe work place, etc. And these bad results for employees have antidotes not only in pressure from unions but also in government action, such as wage and hour laws, work-place-safety rules, measures fostering unionization, and workers’ compensation systems. Given the opposing psychology-induced strains that naturally occur in employment because of incentive-caused bias on both sides of the relationship, it is no wonder the Chinese are so much into Yin and Yang.
The inevitable ubiquity of incentive-caused bias has vast, generalized consequences. For instance, a sales force living only on commissions will be much harder to keep moral than one under less pressure from the compensation arrangement. On the other hand, a purely commissioned sales force may well be more efficient per dollar spent. Therefore, difficult decisions involving trade-offs are common in creating compensation arrangements in the sales function.
Anti-gaming features, therefore, constitute a huge and necessary part of almost all system design. Also needed in system design is an admonition: Dread, and avoid as much you can, rewarding people for what can be easily faked.
Moreover, a rich person will often, through habit, work or connive energetically for more money long after he has almost no real need for more.
Although money is the main driver among rewards, it is not the only reward that works. People also change their behavior and cognition for sex, friendship, companionship, advancement in status, and other non-monetary items.
You can successfully manipulate your own behavior with this rule, even if you are using rewards items that you already possess!
Punishments, of course, also strongly influence behavior and cognition, although not so flexibly and wonderfully as rewards.
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TWO: Linking/Loving Tendency
And what will a man naturally come to like and love, apart from his parents, spouse and child? Well, he will like and love being liked and loved. And so many a courtship competition will be won by a person displaying exceptional devotion, and man will generally strive, lifelong, for the affection and approval of many people not related to him.
One very practical consequence of Liking/ Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend (l) to ignore faults of, and comply with wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to “Influence-from-Mere-Association Tendency,” and (3) to distort other facts to facilitate love.
The phenomenon of liking and loving causing admiration also works in reverse. Admiration also causes or intensifies liking or love. With this “feedback mode” in place, the consequences are often extreme, sometimes even causing deliberate self-destruction to help what is loved.
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THREE: Dislike/Hating Tendency
Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to (1) ignore virtues in the object of dislike, (2) dislike people, products, and actions merely associated with the object of his dislike, and (3) distort other facts to facilitate hatred.
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FOUR: Doubt-Avoidance Tendency
The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision.
Once one has recognized that man has a strong Doubt-Avoidance Tendency, it is logical to believe that at least some leaps of religious faith are greatly boosted by this tendency. Even if one is satisfied that his own faith comes from revelation, one still must account for the inconsistent faiths of others. And man’s Doubt-Avoidance Tendency is almost surely a big part of the answer.
what usually triggers Doubt-Avoidance Tendency is some combination of (l) puzzlement and (2) stress
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FIVE: Inconsistency-Avoidance Tendency
The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance. We see this in all human habits, constructive and destructive.
Given this situation, it is not too much in many cases to appraise early-formed habits as destiny. When Marley’s miserable ghost says, “I wear the chains I forged in life,” he is talking about chains of habit that were too light to be felt before they became too strong to be broken.
The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. Inconsistency-Avoidance Tendency makes it much easier to prevent a habit than to change it.
Also tending to be maintained in place by the anti-change tendency of the brain are one’s previous conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc.
It is easy to see that a quickly reached conclusion, triggered by Doubt-Avoidance Tendency, when combined with a tendency to resist any change in that conclusion, will naturally cause a lot of errors in cognition for modern man. And so it observably works out. We all deal much with others whom we correctly diagnose as imprisoned in poor conclusions that are maintained by mental habits they formed early and will carry to their graves.
people tend to accumulate large mental holdings of fixed conclusions and attitudes that
are not often reexamined or changed, even though there is plenty of good evidence that they are wrong.
One corollary of Inconsistency-Avoidance Tendency is that a person making big sacrifices in the course of assuming a new identity will intensify his devotion to the new identity. After all, it would be quite inconsistent behavior to make a large sacrifice for something that was no good. And thus civilization has invented many tough and solemn initiation ceremonies, often public in nature, that intensify new commitments made.
the tendency will often make man a “patsy” of manipulative “compliance-practitioners,” who gain advantage from triggering his subconscious Inconsistency-Avoidance Tendency. the most important feature of the Chinese brainwashing system that was used on enemy prisoners. Small step by small step, the technique often worked better than torture in altering prisoner cognition in favor of Chinese captors.
This works viciously well in reverse. When one is maneuvered into deliberately hurting some other person, one will tend to disapprove or even hate that person.
So strong is Inconsistency-Avoidance Tendency that it will often prevail after one has merely pretended to have some identity habit, or conclusion. Thus, for a while, many an actor sort of believes he is Hamlet, Prince of Denmark. And many a hypocrite is improved by his pretensions of virtue. And many a judge and juror, while pretending objectivity, is gaining objectivity. And many a trial lawyer or other advocate comes to believe what he formerly only pretended to believe.
In clinical medical education, the learner is forced to “see one, do one, and then teach one,” with the teaching pounding the learning into the teacher. Of course, the power of teaching to influence the cognition of the teacher is not always a benefit to society. When such power flows into political and cult evangelism, there are often bad consequences.
For instance, modern education often does much damage when young students are taught dubious political notions and then enthusiastically push these notions on the rest of us. The pushing seldom convinces others. But as students pound into their mental habits what they are pushing out, the students are often permanently damaged. Educational institutions that create a climate where much of this goes on are, I think, irresponsible. It is important not to thus put one’s brain in chains before one has come anywhere near his full potentiality as a rational person.
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SIX: Curiosity Tendency
Curiosity much helps man to prevent or reduce bad consequences arising from other psychological tendencies. The curious are also provided with much fun and wisdom long after formal education has ended.
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SEVEN: Kantian Fairness Tendency
required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody.
In modern human culture, a lot of courteous lining up by strangers so that all are served on a “first-come-first-served” basis.
Also, strangers often voluntarily share equally in unexpected, unearned good and bad fortune. And, as an obverse consequence of such “fair-sharing” conduct, much reactive hostility occurs when fair-sharing is expected yet not provided.
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EIGHTH: Envy/Jealousy Tendency
“It is not greed that drives the world, but envy.”
Many big law firms, fearing disorder from envy/jealousy, have long treated all senior partners alike in compensation, no matter how different their contributions to firm welfare.
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NINE: Reciprocation Tendency
The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme.
The standard antidote to one’s overactive hostility is to train oneself to defer reaction.
In trade, enlightened self-interest joining with Reciprocation Tendency results in constructive conduct. Daily interchange in marriage is also assisted by Reciprocation Tendency, without which marriage would lose much of its allure.
Wise employers, therefore, try to oppose reciprocate-favor tendencies of employees engaged in purchasing. The simplest antidote works best: Don’t let them accept any favors from vendors.
In a famous psychology experiment, Cialdini brilliantly demonstrated the power of “compliance practitioners” to mislead people by triggering their subconscious Reciprocation Tendency.
Carrying out this experiment, Cialdini caused his “compliance practitioners” to wander around his campus and ask strangers to supervise a bunch of juvenile delinquents on a trip to a zoo. Because this happened on a campus, one person in six out of a large sample actually agreed to do this. After accumulating this one-in-six statistic, Cialdini changed his procedure. His practitioners next wandered around the campus asking strangers to devote a big chunk of time every week for two years to the supervision of juvenile delinquents. This ridiculous request got him a one hundred percent rejection rate. But the practitioner had a follow-up question: “Will you at least spend one afternoon taking juvenile delinquents to a zoo?” This raised Cialdini’s former acceptance rate of 1/6 to 1/2-a tripling.
What Cialdini’s “compliance practitioners” had done was make a small concession, which was reciprocated by a small concession from the other side. This subconscious reciprocation of a concession by Cialdini’s experimental subjects actually caused a much increased percentage of them to end up irrationally agreeing to go to a zoo with juvenile delinquents.
And the very best part of human life probably lies in relationships of affection wherein parties are more interested in pleasing than being pleased-a not uncommon outcome in display of reciprocate- favor tendency.
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TEN: Influence-from-Mere-Association Tendency
…buyers will be tricked into becoming purchasers by mere association of his product and its high price.
Even association that appears to be trivial, if carefully planned, can have extreme and peculiar effects on purchasers of products. The target purchaser of shoe polish may like pretty girls. And so he chooses the polish with the pretty girl on the can.
Some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or one’s disliking and hating, which includes a natural hatred for bad news.
The proper antidotes to being made such a patsy by past success are (1) to carefully examine each past success, looking for accidental, non- causative factors associated with such success that will tend to mislead as one appraises odds implicit in a proposed new undertaking and (2) to look for dangerous aspects of the new undertaking that were not present when past success occurred.
People disagree about how much blindness should accompany the association called love. In Poor Richard’s Almanac Franklin counseled: “Keep your eyes wide open before marriage and half shut thereafter.” Perhaps this “eyes-half-shut” solution is about right, but I favor a tougher prescription: “See it like it is and love anyway.”
Hating and disliking also cause miscalculation triggered by mere association. In business,
I commonly see people under appraise both the competency and morals of competitors they dislike. This is a dangerous practice, usually disguised because it occurs on a subconscious basis.
The proper antidote to creating Persian Messenger Syndrome and its bad effects, like those at CBS, is to develop, through exercise of will, a habit of welcoming bad news. At Berkshire, there is a common injunction: “Always tell us the bad news promptly. It is only the good news that can wait.” It also helps to be so wise and informed that people fear not telling you bad news because you are so likely to get it elsewhere.
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ELEVEN: Simple, Pain-Avoiding Psychological Denial
The reality is too painful to bear, so one distorts the facts until they become bearable. We all do that to some extent, often causing terrible problems. The tendency’s most extreme outcomes are usually mixed up with love, death, and chemical dependency.
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TWELVE: Excessive Self-Regard Tendency
We all commonly observe the excessive self-regard of man. He mostly misappraises himself on the high side, like the ninety percent of Swedish drivers that judge themselves to be above average. Such misappraisals also apply to a person’s major “possessions.” One spouse usually over appraises the other spouse. And a man’s children are likewise appraised higher by him than they are likely to be in a more objective view. Even man’s minor possessions tend to be over appraised. Once owned, they suddenly become worth more to him than he would pay if they were offered for sale to him and he didn’t already own them. There is a name in psychology for this overappraise-your-own-possessions phenomenon: the “endowment effect.” And all man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.
Man’s excess of self-regard typically makes him strongly prefer people like himself.
Let us consider some foolish gambling decisions. In lotteries, the play is much lower when numbers are distributed randomly than it is when the player picks his own number. This is quite irrational. The odds are almost exactly the same and much against the player.
More counterproductive yet are man’s appraisals, typically excessive, of the quality of the future service he is to provide to his business. His overappraisal of these prospective contributions will frequently cause disaster.
Excesses of self-regard often cause bad hiring decisions because employers grossly overappraise the worth of their own conclusions that rely on impressions in face-to-face contact. The correct antidote to this sort of folly is to underweigh face-to-face impressions and overweigh the applicant’s past record.
I convinced fellow committee members to stop all further interviews and simply appoint a person whose achievement record was much better than that of any other applicant.
Because man is likely to be overinfluenced by face-to-face impressions that by definition involve his active participation, a job candidate who is a marvelous “presenter” often causes great danger under modern executive-search practice.
There is a famous passage somewhere in Tolstoy that illuminates the power of Excessive Self-Regard Tendency. According to Tolstoy, the worst criminals don’t appraise themselves as all that bad. They come to believe either (1) that they didn’t commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became.
It is very important to have personal and institutional antidotes limiting the ravages of such folly. On the personal level a man should try to face the two simple facts: (1) fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance, and (2) in demanding places, like athletic teams and General Electric, you are almost sure to be discarded in due course if you keep giving excuses instead of behaving as you should. The main institutional antidotes to this part of the “Tolstoy effect” are (1) a fair, meritocratic, demanding culture plus personnel handling methods that build up morale and (2) severance of the worst offenders. Of course, when you can’t sever, as in the case of your own child, you must try to fix the child as best you can.
The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity. This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.
Of all forms of useful pride, perhaps the most desirable is a justified pride in being trustworthy. Moreover, the trustworthy man, even after allowing for the inconveniences of his chosen course, ordinarily has a life that averages out better than he would have if he provided less reliability.
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THIRTEEN: Overdepotism Tendency
…an excess of optimism even when he is already doing well.
…excess of optimism being the normal human condition, even when pain or the threat of pain is absent. Witness happy people buying lottery tickets or believing that credit-furnishing, delivery- making grocery stores were going to displace a great many superefficient cash-and-carry supermarkets.
One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal
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FOURTEEN: Deprival-Superreaction Tendency
The loss seems to hurt much more than the gain seems to help.
If a man almost gets something he greatly wants and has it jerked away from him at the last moment, he will react much as if he had long owned the reward and had it jerked away.
A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, status, or any other valued thing.
The most addictive forms of gambling provide a lot of near misses and each one triggers Deprival-Superreaction Tendency.
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FIFTEEN: Social-Proof Tendency
Triggering (of the Social-Proof Tendency) mostly readily occurs in the presence of puzzlement or stress, and particularly when both exist.
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Sixteen: Contrast-Misreaction Tendency
Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny. “A small leak will sink a great ship”.
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Seventeen: Stress-Influence Tendency
Stress makes social-proof tendency more powerful.
Light stress can slightly improve performance-say, in examinations- whereas heavy stress causes dysfunction.
Pavlov findings studying stress on dogs:
- He could classify dogs so as to predict how easily a particular dog would breakdown.
- The dogs hardest to break down were also the hardest to return to their pre-breakdown state
- Any dog could be broken down
- He couldn’t reverse the breakdown except by reimposing stress
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Eighteen: Availability-Misweighing Tendency
Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. The mind overweighs what is easily available and thus displays Availability-Misweighing Tendency.
The main antidote to those miscues often involve procedures, including use of checklists, which are almost always helpful.
An idea or a fact is not worth more merely because it is easily available to you.
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Nineteen: Use-It-or-Lose-It Tendency
Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from “man with a hammer tendency”… …It is also essential for a thinking man to assemble his skills into a checklist that he routinely uses. Any other mode of operation will cause him to miss much that is important.
The hard rule of Use-it-or-Lose-It Tendency tempers its harshness for the diligent. If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come back faster when refreshed with new learning. These are not minor advantages, and a wise man engaged in learning some important skill will not stop until he is really fluent in it.
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Twenty: Drug-Misinfluence Tendency
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Twenty-One: Senescence-Misinfluence Tendency
Continuous thinking and learning, done with joy, can somewhat help delay what is inevitable.
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Twenty-two: Authority-Misinfluence Tendency
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Twenty-three: Twaddle Tendency
trivial or foolish speech or writing; nonsense.
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Twenty-four: Reason-respecting Tendency
Thinking through reasons before giving orders but also communicating these reasons to the recipient of the order.
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Twenty-Five: Lollapalooza Tendency — The Tendency to Get Extreme Consequences from Confluences of Psychological Tendencies Acting in Favor of a Particular Outcome
