
Charlie Munger – The Psychology of Human Misjudgment - mrkibo
http://fermatslibrary.com/s/the-psychology-of-human-misdgugement
======
Animats
That's a fun read. The section on incentives is useful. But he idolizes
_Patterson_ , the National Cash Register guy? That guy was the Travis Kalanick
of the late 19th century.

"Politics is the art of marshalling hatreds". Munger was way ahead of his time
there.

"First-conclusion bias". Huge problem with cops.

"It is not greed that drives the world, but envy" \- cited to Warren Buffett.
Hmm. He probably ran into too many business types with the mindset "It's not
enough to win; someone else has to lose." Such ego trips are not useful to the
stockholders.

"Always tell us the bad news promptly. Good news can wait" \- Berkshire
policy.

"A job hunter who is a marvelous 'presenter' often causes grave danger under
modern executive-search practice." \- referring to how Carly Fiorina tanked
HP.

"An excess of optimism is the normal human condition" \- cited to Demosthenes.
Didn't know that went back that far.

"Deprival Superreaction" \- the asymmetry between gain and loss is well known,
but not under that name.

~~~
nostrademons
Munger's an adherent of a particular value system common among businessmen
from the mid-19th -> late-20th century. In this value system, 1) the primary
purpose of economic activity is efficiency, producing more with less 2) the
purpose of employees is to serve as instruments for their employers to
accomplish their business goals and 3) anything that gets in the way of this
is by definition evil, and it is not immoral to work around such restrictions
for the purposes of increasing efficiency.

Both Patterson and Travis Kalanick are exceptionally virtuous men by this
value system. They were ruthless drivers of efficiency, willing to ignore any
obstacles in the pursuit of making their businesses bigger and more
profitable. Other adherents to this value system include Milton Friedman, Ayn
Rand, Bill Gates, John D. Rockefeller, J.P. Morgan, Steve Jobs, and Paul
Graham.

By contrast, the dominant value system in America today is marked by different
tenets: 1) the primary purpose of life - of which economic activity is only
one facet - is self-fulfillment and emotional gratification 2) it is virtuous
to pursue such goals for yourself as long as you don't interfere with other
peoples' pursuit of such goals 3) rules and regulations exist to enforce #2 on
behalf of the powerless, and those who break those rules are by definition
evil and 4) the employee/employer relationship should be a partnership where
the employer should provide purpose and direction in accord with the
employee's value system, and in return the employee helps the employer
accomplish their business goals. Interestingly, both the Left and the Right of
an increasingly divided America subscribe to this value system, they just
define "self fulfillment and emotional gratification" differently.

The two value systems aren't _entirely_ at odds with each other, but they aim
toward entirely different purposes, and so naturally they conflict at several
points. When this happens, things that may be considered the height of virtue
under one value system are morally abhorrent to another one.

~~~
titzer
> By contrast, the dominant value system in America today is marked by
> different tenets: 1) the primary purpose of life - of which economic
> activity is only one facet - is self-fulfillment and emotional gratification
> 2) it is virtuous to pursue such goals for yourself as long as you don't
> interfere with other peoples' pursuit of such goals 3) rules and regulations
> exist to enforce #2 on behalf of the powerless, and those who break those
> rules are by definition evil and 4) the employee/employer relationship
> should be a partnership where the employer should provide purpose and
> direction in accord with the employee's value system, and in return the
> employee helps the employer accomplish their business goals. Interestingly,
> both the Left and the Right of an increasingly divided America subscribe to
> this value system, they just define "self fulfillment and emotional
> gratification" differently.

Wow, you are a whole lot less cynical than I am, because when I look at
American businesses, the operation of the hyper-growth mindset in practice,
and the consequences of policies and practices that assume sustained
exponential growth, I don't see these values reflecting back.

~~~
peterwwillis
They don't, because the purpose of capitalism is to exponentially increase
profits. Even if you want to give employees more money so they can buy the
products they make and strengthen the economy that enables your corporation,
at some point the true purpose of capitalism (ABC - always be capitalizin')
will reach a point where all the money is either held by the corporation or
the employees, and the only way to increase profits is to take it from the
employees. Which is why employee pay stagnates while corporate profits zoom
sky high.

Corporations do not value employees any more than the man turning a crank
values the cogs.

~~~
adventured
> They don't, because the purpose of capitalism is to exponentially increase
> profits.

The purpose of Capitalism is free-association based capital allocation for
generating a profit, not to exponentially increase profit. There is no
arbitrary outsized multiplication definition attached, nor is there an
arbitrary small level of profit under which it's no longer considered
Capitalism.

Costco and Walmart are blatantly Capitalist entities, they operate with
minuscule 2-3% net income margins.

~~~
peterwwillis
> they operate with minuscule 2-3% net income margins

Which isn't evidence of the aforementioned point. I'll grant you "exponential"
isn't mathematically correct - it's more a turn of phrase. But the profit
margins here are strategic.

Costco's gross income per square foot is much higher than Walmart's while
their margin is half that of Walmart's. Costco is more valuable, and makes
less profit. This is because Costco's aim is to provide the best value for its
members [whom usually have more disposable income]. It does this by jockeying
for the best bulk price, increasing efficiency, and providing good pay and
benefits to its workers. Costco is a shining example of the idea of the
corporation being a partner with the employees.

Walmart's aim is to control markets, and does so by eliminating the potential
for price competition and then using its buying power to force sellers to bow
to its whims. Costco could make much more profit by treating its workers the
way Walmart does, but chooses not to, because its value proposition is
different.

Costco will also probably not be able to compete for long, not because it
isn't valued well, but because Amazon and Walmart will eventually take over
every remaining obstacle to the consumer's wallet. Walmart is also slowly
increasing its revenue per square foot so it doesn't have to keep fighting a
losing battle online.

------
steveeq1
For those of you who liked this speech, check out his book "Poor Charlie's
Almanack":
[https://www.poorcharliesalmanack.com/](https://www.poorcharliesalmanack.com/)

Which contains that speech and other talks that he has given over the years.
It's a beautifully illustrated book chock full of his witticisms. I enjoyed it
tremendously. Also check out "Seeking Wisdom" (from the same publisher and
website). The book was listed as a favorite of Nassim Taleb (whom I am also a
fan of). It's one of my favorite books, personally.

------
ThrustVectoring
>Never, ever, think about something else when you should be thinking about the
power of incentives.

The article is worth reading for this alone.

------
theartfuldodger
[https://www.farnamstreetblog.com/2013/02/the-psychology-
of-h...](https://www.farnamstreetblog.com/2013/02/the-psychology-of-human-
misjudgement/)

------
melling
Here’s an older post with some good comments:

[https://news.ycombinator.com/item?id=12159242](https://news.ycombinator.com/item?id=12159242)

------
jczhang
Anyone have a more readable / cliff notes version?

~~~
JamesLeonis
The most readable copy I have.

[http://tarangshah.com/to-
read/MungerMisjudgement.html](http://tarangshah.com/to-
read/MungerMisjudgement.html)

~~~
theyregreat
Thanks. I hate these pseudo-PDF, book shovelware sites that
paywall/proprietarize/socalize content to be useless on readers and generally
get in the way.

~~~
melling
Is there a copyright? Can this be ocr’ed?

------
HiroshiSan
Can someone explain this line to me:

"As I had early discovered in school wherein I had excelled without labor,
guided by theory, while many others, without mastery of theory, failed despite
monstrous effort."

Is he talking about conceptual understanding vs rote memorization? What theory
is he talking about?

~~~
Rzor
Perhaps not rote memorization, but figuring things out by tinkering without a
mental model or conceptual understanding as you say.

------
scandox
> ordinarily when you try to use your knowledge of psychological tendencies in
> the artful manipulation of someone whose trust you need, you will be making
> both a moral and prudential error. The moral error is obvious. The
> prudential error comes because many intelligent people, targeted for
> conscious manipulation are likely to figure out what you are trying to do
> and resent your action.

Seems to me then the obvious moral error extends to less intelligent (so
regarded) individuals and to groups of individuals of all stripes. Which
presumably means Mr Munger has never utilised the methods he has researched so
digligently.

------
beautifulfreak
I was afraid that I would end up "with no brain at all, just a neck that had
haired over." Heh.

