Charlie Munger on the Psychology of Human Misjudgment

A former adviser (and current textbook co-author) sent me a link to a transcript of a speech or a conversation with Charlie Munger, given to Harvard Law School in 1995. While almost 20 years old, this was my first introduction to the idea of a science devoted to human misjudgment, and I’m enthralled by it.

Charlie Munger

Munger refers to the origins as seeing an extreme,  patterned irrationality, which he used to create a psychology system that drew in part from casual reading, but also from personal experience. Eventually he came across this book which helped frame his views even more, and helps bridge the gaps between economics and psychology.

He continues to run through 22 of the 24 standard causes of human misjudgment (which I won’t reprint here), but I’m still digesting it. Partially because I’m doing simultaneous research on the references throughout the piece (I have a running list of things that I can’t quite remember or have never heard of, including Pavlov’s dog, superstitious pigeons, Zimbardo and, Russell’s teapot, and that’s only through the first 4 causes).

I like how he uses examples to illustrate each cause, which helps to drive his point home and makes it more relate-able.  I can make correlations not only to my own work situation, but ideas for what it means to understand people and to get what you want or need out of them, which might make people sound disposable, but I mean the exact opposite. By sharing values and understanding perceptions, employers can show that they value people while also meeting their strategic organizational goals.  The story that sticks out to me correlates with #1:

Under-recognition of the power of what psychologists call ‘reinforcement’ and economists call ‘incentives.’

Basically, FedEx  is built on a business model that endeavors to move all packages to one central location on the night shift, and it must be done quickly–which they were having problems accomplishing. They decided to pay per shift instead of per hour, and productivity skyrocketed. It proves my favorite point of a positive work culture: value people for what they produce, not how long it takes them to do it.

Which is also why I enjoy freelancing so much, and why I negotiate by project scope and not always by time. Eventually, I do hope to put all these thoughts into practice (i.e. managing human misjudgment effectively), but that’s my year-end goal: established personal business. I just need to figure out what I want/need to do (*just* being the key word).


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