Psychological Biases That Cause Us to Make Bad Decisions

I recently read an article by Michael Simmons in which he summarizes Charlie Munger’s views on the psychological biases that humans unconsciously use while making decisions. The premise is that these biases normally lead to poor decisions but being aware of them enables you to make critical decisions correctly and protect yourself from manipulation.

I found this topic very interesting and wanted to briefly write about it, not only to share with others, but to help me internalize the main ideas and to serve as a reference for the future. Note that I make no pretense of trying to be comprehensive here – if you wish to learn more about this, I suggest reading the original article at the very least, if not Munger’s own writing.

Here is my outline of these psychological biases, borrowing very liberally from the original article:

1. Reward & Punishment Superresponse Tendency

2. Liking/Loving Tendency

3. Disliking/Hating Tendency

4. Doubt/Avoidance Tendency

5. Inconsistency-Avoidance Tendency

6. Curiosity Tendency

7. Kantian Fairness Tendency

8. Envy/Jealousy Tendency

9. Reciprocation Tendency

10. Influence-From-Mere-Association Tendency

11. Pain-Avoiding Psychological Denial

12. Excessive Self-Regard Tendency

13. Over-Optimism Tendency

14. Deprival-Superreaction Tendency

15. Social-Proof Tendency

16. Contrast-Misreaction Tendency

17. Stress-Influence Tendency

18. Availability-Misweighing Tendency

19. Authority-Misinfluence Tendency

20. Twaddle Tendency

21. Reason-Respecting Tendency

22. Lollapalooza Tendency

Checklists

Checklists allow Munger to use the right models at the right time when he’s making important decisions.

The following checklist is proposed in the book Seeking Wisdom (endorsed by Charlie Munger and Warren Buffett) for understanding the impact of our biases on any given decision:

Two-track Analysis – When analyzing any situation in which decision-making by people is involved, Munger considers two tracks: