Charlie Munger: 24 Standard Causes of Human Misjudgment

Well, I am very interested in the subject of human misjudgment, and Lord knows I've created my well, a good bit of it. I don't think I've created my full statistical share, and I think that one of the reasons was that I tried to do something about this terrible ignorance I left the Harvard Law School with. When I saw this patterned irrationality, which was so extreme, I had no theory or anything to deal with it, but I could see that it was extreme and I could see that it was patterned. I just started to create my own system of psychology, partly by casual reading, but largely from personal experience.

I used that pattern to help me get through life. Fairly late in life, I stumbled into this book influenced by a psychologist named Bob Cialdini, who became a super tenured hotshot on a two-thousand-person faculty at a very young age. He wrote this book which has now sold 300,000 copies, which is remarkable for, semi, well, it's an academic book aimed at a popular audience. That filled in a lot of holes in my crude system, and when those holes had filled in, I thought I had a system that was a good working tool, and I'd like to share that one with you.

I came here because behavioral economics—how could economics not be behavioral? If it isn't behavioral, what the hell is it? I think it's fairly clear that all reality has to respect all other reality. If you come to inconsistencies, they have to be resolved. So the idea of, if there's anything valid in psychology, economics has to recognize it, and vice versa. I think the people that are working on this fringe between economics and psychology are absolutely right to be there, and I think there's been plenty wrong over the years.

Well, let me romp through as much of this list as I have time to get through: 24 standard causes of human misjudgment. First: under-recognition of the power of what psychologists call reinforcement and economists call incentives. Well, you say everybody knows that. Well, I think I've been in the top five