Seeking Wisdom: From Darwin To Munger
Peter Bevelin
Description
Peter Bevelin begins his fascinating book with Confucius' great wisdom: "A man who has committed a mistake and doesn't correct it, is committing another mistake." Seeking Wisdom is the result of Bevelin's learning about attaining wisdom. His quest for wisdom originated partly from making mistakes himself and observing those of others but also from the philosophy of super-investor and Berkshire Hathaway Vice Chairman Charles Munger. A man whose simplicity and clarity of thought was unequal to anything Bevelin had seen.
This book is for those who love the constant search for knowledge. It is in the spirit of Charles Munger, who says, "All I want to know is where I'm going to die so I'll never go there." There are roads that lead to unhappiness. An understanding of how and why we can ‘die’ should help us avoid them. We can't eliminate mistakes, but we can prevent those that can really hurt us.
Using exemplars of clear thinking and attained wisdom, Bevelin focuses on how our thoughts are influenced, why we make misjudgements and tools to improve our thinking. Bevelin tackles such eternal questions as: Why do we behave like we do? What do we want out of life? What interferes with our goals?
Key words: Meaning
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My notes
Introduction
The best way to learn what, how and why things work is to learn from others. Charles Munger says, “I believe in the discipline of mastering 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”.
Charles Munger is a man whose simplicity and clarity of thought is unequal to anything I have seen.
Charles Darwin is one of the best thinkers who ever lived. Darwin’s lesson is that even people who aren’t geniuses can outthink the rest of mankind if they develop certain thinking habits.
To improve my own thinking, I read books in biology, psychology, neuroscience, physics, and mathematics. As the 17th century French philosopher Rene Descartes said: “The reading of all good books is like conversation with the finest minds of past centuries” … I started to write down what I learned… As the roman poet Publius Tertius (c 190-159 BC) wrote: “Nothing has yet been said that’s not been said before”. I have condensed what others have written in a usable form and added my own conclusions.
Italian mathematician and philosopher Gian-Carlo Rota’s said in Indiscrete Thoughts: “The advice we give others is the advice the we ourselves need.”
Part 1: What influences our thinking?
Dopamine is involved in the brain’s reward and motivation system, and in addiction. High levels of dopamine are believed to increase feelings of pleasure and relieved pain. Another neurotransmitter is serotonin. Serotonin is linked with mood and emotion. Too much stress can lead to low levels of serotonin and low levels are associated with anxiety and depression.
Every living think uses the same genetic code – from cats to humans. This means we can transfer a single human gene into a cat and the car ‘can read it’ and follow its instructions. But no individual has the same SNA or the same versions of genes (except for identical twins). Not all things are ‘spelled’ alike. That’s why people differ in eye colour, height, etc. The closer related one living this is to another, the fewer spelling differences. But even if the differences are small, gene expression – where and when they are turned on or off and for how long – is the key.
Neural connections are shaped by life experience.
Experiences are the reason that all individuals are unique. There are no individuals with exactly the same upbringing, nutrition, education, social stamping, physical, social and cultural setting. This creates different convictions, habits, values and character. People behave differently because differences in their environment cause different life experiences. This is why it is something’s hard to understand other people’s behaviour. To do that, we must adapt to their environment and share their experiences. This is often impossible.
Behaviour is influenced by our state of mind… ‘Our life is what our thoughts make it’.
Evolution selected the connections that produce useful behaviour for survival and reproduction
The world is not fixed by evolving. Species change, new ones arrive and others go extinct. Darwin called his principle natural selection. Any slight variation in traits that gives an individual an advantage in competing with other individuals of the same or different species or in adapting to changes in their environment increases the changes that the individual will survive, reproduce, and pass along its characteristics to the next generation.
What drives us?
The 17th Century English Philosopher John Locke said: “Good and evil, reward and punishment, are the only motives to a rational creature: these are the spur and reins whereby all mankind are set on work and guided. “We are driven by our need to avoid pain (and punishment) and a desire to gain pleasure (and reward). Evolution has made any behaviour that helps us survive and reproduce feel pleasurable or rewarding. Behaviour that is bad for us feels painful or punishing. Feelings of pain and pleasure are useful guide to what is good or bad for us. If we eat, we feel pleasure. If we starve ourselves, we feel pain.
Research shows that we feel more pain from losing than we feel pleasure form gaining something of equal value and that we work harder to avoid losing that we do to win.
Our aversion to pain also encourages a certain human behaviour: to take the most rewarding view of events. We interpret choices and events in ways that make us feel better. We often prefer to hear supporting reasons for our beliefs: think of ourselves as more talented than others and make the best of bad situations.
Essentially what we do today is a function of what worked in the past. We adapt to our environment by learning from the consequences of our actions. We do things that we associate with pleasure and avoid things that we associate with pain.
Chessmasters look for patterns and decide what to do based on what have working well in the past. Why? Because what worked in the past is most likely to work in the future… Warren Buffett follows up with: ”How can a human mind deal with a computer that’s thinking at speeds that are so unbelievable?” … Well, it turns out a mind like that… essentially eliminates about 99.99 per cent of the possibilities without even thinking about them. So, it wasn’t that they could outthink a computer in terms of speed, but they had this ability of what you might call ‘grouping’ or ‘exclusion’, where essentially, they just got right down to the few possibilities out of these zillions of possibilities that really had any chance of success.
The hunter gatherer environment has formed our basic nature… this means that humans have spent more than 99 per cent of their evolutionary history in the hunter gatherer environment. If we compress four million years into 24 hours, and if the history of humans began at midnight, agriculture made its appearance on the scene 23 hours and 55 minutes later.
Adaptive Behaviour for Survival and Reproduction
The individual comes first – ‘There’s no such thing as society. There are individual men and women, and there are families.’
Since natural selection is about survival and reproduction, and individual either survive or die and reproduce or not, it makes sense that individuals are predisposed to act in ways that enhance their own prospects for survival and reproduction.
Tests show that if people play the game over and over, they learn that it is more profitable to cooperate. Repetition tests trust. Trust is key and fragile. It can vanish in a moment.
In chapter three of The Decent of Man, Charles Darwin wrote: “At the moment of action, man will no doubt be apt to follow the stronger imposes; and thought this may occasionally prompt him to the noblest of deeds, it will far more commonly lead him to gratify his own desires at the expense of other men. But after their gratification, when past and weaker impressions are contrasted with the ever-enduring social instincts, retribution will surely come. Man will then feel dissatisfied with himself and will resolve with more or less force to act differently for the future. This is conscience; for conscience looks backwards and judges past actions, inducing that kind of dissatisfaction, which if weak we call regret, and if severe remorse.
A Tendency for fear
Our fears are always more numerous than our dangers. – Lucius Annaeus Seneca (Roman philosopher, c.4 BC-65 AD)
The passengers boarded flight 651 to Chicago. Two hours after take-off, the flight attendant heard suspicious noise from the lavatory. The passengers started to talk among themselves. Panic erupted. … We fear dramatic and threatening events. We fear the loss of our health, family, punishment, rejection, failure, the unknown, the immediate, the unpredictable or the uncontrollable. Studies show that even witnessing a traumatic event can produce the same fear response as experiencing the event ourselves.
Fear is our most basic emotion. Fear has evolved to help us anticipate danger and avoid pain. As science writer Rush Dozier writes in Fear Itself. “Fear is fundamental because life is fundamental. If we die, everything else becomes irrelevant.”
Humans have developed a strong emotion for fear. Our ancestor’s environment was fraught with dangers. Fear of physical danger, social disapproval, lack of food, no matter, predators, etc. Self-survival was a powerful incentive. Mistakes could be extremely costly.
Our ancestors learned through trial and error that in the long run, pain could be avoided if they are fearful. They survived the dangers because they learned how to respond.
If pain and pleasure are guides to the behaviour that leads to survival and reproduction, fear is our biological warning signal for avoiding pain. Fear warns us of potential harm and keeps us from actin in self-destructive ways. It helps us avoid threats and makes us act to prevent further damage. Fear guides us to avoid what didn’t work in the past. Fear causes worry and anxiety, normal response to physical danger. It activates hormones like adrenaline and cortisol, which keeps us attentive to harm since we need full attention to escape a threat.
You reacted with fear on the deserted street because evolution equipped your brain to register pain more pensively hand other emotion. You were using the ‘memory’ of your ancestral past – your primitive fear system of fight or flight.
We don’t like uncertainty or the unknown. We need to categories, classify, organise, and structure the world. Categorising ideas and objects helps us to recognise, differentiate and understand. It simplifies life. To understand and control our environment helps us to deal with the future. We want to know how and why things happen and what is going to happen in the future. To understand how an event happens helps us predict how it could happen again. This is why we always look for patterns and causal relationships among objects, actions and situation.
Being flexible and learning a variety of options to choose from to deal with the world is of great value.
Further studies suggest that we learn better when we mix new information with what we already know.
Making fast classifications – our brain is wired to perceive before it thinks – to use emotions for reason. As a consequence of our tendency for fear, fast classifications come naturally. Limited time and knowledge in a dangerous and scarce environment made hasty generalisations and stereotyping vital for survival. Waiting and weighing evidence could mean death.
Males and females have different priorities… Put more completely, the brain exists to make better decisions about how to enhance reproductive success.
So mating choices (showing up as an unconscious preferences) are influenced by the fact that women have more at stake than men do. (The reproductive success of women doesn’t depend on how many men she has sex with, but on her ability to get access to resources – like food, shelter, and protection… she won’t pick the first guy around).
The social animal
We do not care about our reputation in towns where we are only passing through. But when we have to stay some time, we do care. How much times does it take? A time proportionate to our vain and paltry existence” – Blaise Pascal (French mathematician and philosopher, 1623-1662).
Isn’t it likely that a good reputation, status, resources, and being socially accepted helped our ancestors survive, get a mate and reproduce?
Isolation from a group or society could mean destruction. There was safety in numbers.
Traits like fear of failure, losing social status or reputation were important because they affected an individual standing in the ancestral hunter-gatherer society. Access to food and sex depended on it. survival and reproduction could be threatened.
Let’s go back one million years and assume you were living in a small community with 150 people where everybody knew each other, and where the mating opportunities were limited. The environment was fraught with danger and challenges. The key to avoid danger, get food and attract a partner. What behaviour was critical to survival and reproduction?
Isn’t it rewarding to make fast judgments? – ‘If noise behind the bush, then run.’ It is a natural tendency to act on impulse – to use emotions for reason. The behaviour that was critical for survival and reproduction in our evolutionary history still applies today. Wouldn’t being fearful help, you survive? Social failure be costly? Maintaining status, resources and social approval help you survive and get a mate? Wouldn’t you present yourself as honest, nice and trustworthy so others will cooperate with you? Wouldn’t a common threat or a common goal make people cooperate? Wouldn’t following social norms make sense? Wouldn’t you have a strong aversion to losses and only take big risks when you were threatened? Wouldn’t you be concerned with the short-term interest of yourself and loved ones?
Assume individuals over time make certain social behaviour choices. These choices were transmitted through learning and culture. Over time, they will be favoured by natural selection since they positively influence survival and reproduction.
Our basic nature
Natural selection equipped us with traits that increase our chances for survival and reproduction. It then follows that we consciously or unconsciously have according to what we perceive is in our own best interest.
Let’s summarise the forces that influence and set the limits for our judgements. Genes – environmental stimuli cause response tendencies from our genes. Our genes have evolved, and their functions are primarily based on what was beneficial in the hunter-gatherer environment – the environment where humans spent most of their time. To survive, we must avoid all perceived threats to our survival and reproduction. Evolution has developed a value system based on pain and pleasure that help us deal with the environment. Since the ancestral environment consisted of limited resources and danger, we developed a strong aversion for loss and a tendency for fear. We made fast evaluations and became social animals. We were predisposed to evaluation situations by being fearful. To not respond with fear could be more scantly that responding with fear and being wrong. We also acted in ways where the reward was important, and cost was minimal.
Life Experiences – Upbringing, tuition, education, social stamping, physical, social and cultural settings create certain convictions, habits, values, attitudes, and character traits. This in turn creates our individual beliefs and assumptions. Our judgements are influences by our state of mind.
Present Environment – Outside factors like the environment, the context or circumstances, or the specific situation.
Randomness – We are prepared to be open minded to new experiences since environments vary; handling new challenges is a means of adaption.
The consequences of our actions reinforce certain behaviour. If the consequences were rewarding, our behaviour is likely to be repeated. What we consider reading is individually specific. Rewards can be anything form health, money, job, reputation, family, status, or power. In all of these activities, we do what works. This is how we adapt. The environment selects our future behaviour.
But it’s not just what happens to us that counts. It’s what we think happens. When we face a situation, our brain creates an expectation. We can act in ways contrary to our self-interest if we don’t understand the consequences.
Our behaviour creates feedback form our environment. If we do dumb things and suffer the consequences, we may still do dumb things in the future even if it causes pain. Whether because we don’t understand the cause of our mistake, or the pain is less painful than other behaviour.
Our experiences are stored in the brain and influence us in the future. New connecting patterns between neurons are created.
Warren Buffett gives us some introductory remarks on when even smart people get bad results: …. ‘And I would say if Charlie and I have any advantage it’s not because were so smart, it is because were rational and we very seldom let extraneous factors interfere with our thoughts. We don’t let other people’s opinion interfere with it… we try to get fearful when others are greedy. We try to get greedy when others are fearful. We try to avoid any kind of imitation of other people’s behaviour. And those are factors that cause smart people to get bad results.
Part 2: The Psychology of Misjudgements
Part One gave us the background of our behaviour, psychology and limitations. We learned how pain and pleasure guided our behaviour, how we tend to take the most rewarding view of events, how we make quick judgments, and are social animals. We also saw how we have developed a strong aversion to loss and uncertainty, and how it is anural for people to behave in ways they perceive is in their best interest.
If we change context or environment, we change behaviour. The next chapter describes the 28 psychological reasons why we make misjudgements and mistakes.
Psychological Reasons for Mistakes
Mere association
Warren Buffet says on being informed of bad news: “We only have a couple of instructions to people when they go to work for us: One is to think like an owner. And the second is to tell us bad news immediately – because good news takes care of itself. We can take bad news, but we don’t like it late.”
Reward and Punishment
Incentives act as reinforcers…. After a success, we became overly optimistic risk-takers. After a failure, we became overly pessimistic and risk-averse – even in cases where success or failure were merely a result of chance. Good consequences don’t necessarily mean we made a good decision, and bad consequences don’t necessarily mean we made a bad decision.
Mark Twain understood the dangers of blindly trusting past experience for dealing with the future. ‘We should be careful to get out of an experience only the wisdom in it, and stop there, lest we be like the cat that sits down on a hot stove-lid. She will not sit down on a hot stove-lid again – but also she will never sit down on a cold one anymore.’
Frequent rewards feel better.
We prefer a sequence of experiences that improve over time. Losing $100 first and then gaining $50 seems more rewarding than gaining $50 and then losing $100. We want to get rid of the bad experience first. Immediate losses are preferred over delayed ones.
How can we lose a conditioned reflex that’s working for us? Charles Munger continues…. if you’re selling a product and its always available, people are less likely to shift to some other produce and get reinforced by it.
It is better to encourage what is right than to criticise what is wrong.
Make people share both the upside and the downside.
Reward individual performance and not effort or length in organisation and reward people after and not before their performance.
A reward for achievements makes us feel that we are good at something thereby increasing our motivation. But a reward that feels controlling and makes us feel that we are only doing it because where’re paid to do it, decreases the appeal. ‘We are generally the better persuaded by the reasons we discover ourselves than by those given to us by others’.
Have systems that make it hard for people to get away with undesirable behaviour. Make undesirable behaviour costly.
‘It’s very hard to change a system when the guy whose hand is on the switch benefits enormously and, perhaps, disproportionately from that system’.
‘An example of a really responsible system is the system the Romans used when they built an arch. They guy who created the arch stood under it as the scaffolding was removed. It’s like packing your own parachute’.
Self-interest and incentives
People do what they perceive is in their best interest and are biased by incentives.
Incentives for the decision-maker determine behaviour. This means that we have to recognise self-interest behaviour in others.
“Many years ago, a Pasadena friend of mine made fishing tackle. I looked at his fishing tackle – it was green and purple and blue – I don’t think I’d ever seen anything like them. I asked him “God! Do fish bite these lures?” He said to me, “Charlie, I don’t sell to fish.”
Since the risk of losing is more motivating than the chance of gaining, we stand a better chance changing people if we appeal to their fear of losing something they value – job, reputation, status, money, control, etc.
Don’t automatically trust people who have something at stake from your decision. Ask: What are the interests? Who benefits?
Understand people’s motivations. Money, status, love of work, reputation, position, power, envy? What are they rewarded or punished for? Are they benefitting or losing from the present system?
Pressuring people or giving them orders doesn’t work. It is better to convince people by asking questions that illuminate consequence. This causes them to think for themselves and make It more likely that they discover what’s in their best interest.
Self-Serving Tendencies and Optimism
Man suffers much because he seeks too much, is foolishly ambitious and grotesquely overestimates his capacity Isaiah Berlin (Russian-British Philosopher, 1909-1997.
Optimism is good but when it comes to important decisions, realism is better.
The more we know or think we know about a subject, the less willing we are to use other ideas. Instead, we tend to solve a problem in a way that agrees with our area of expertise.
Experts love to extrapolate their ideas from one field to all other fields. They define problems in ways that fit their tools rather than ways that agree with the underlying problem.
We immediately classify people which brings to mind a host of associations…. Preconceived ideas about certain people, races, religions, or occupations cause us to automatically assume that an individual from a particular group has special characteristics.
Why do some people seem to have an intuition for evaluating people? Maybe their life experiences give them the ability (by asking questions and observing behaviour) to look for clues to and individuals character…. Charles Munger notes… “Actually, I think it’s pretty simple: There’s integrity, intelligence, experience, and dedication. That’s what human enterprises need to run well.”
“It’s remarkable how much long-term advantage people have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, ‘It’s the strong swimmers who drown’.” (Charles Munger).
Self-Deception and Denial
Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true – Demosthenes (Greek statesman, 384-322 BC)
We view things the way we want to see them. We hear what we want to hear and deny what is inconsistence with our deeply held beliefs. We deny unpleasant news and prefer comfort to trust. We choose the right people to ask. We make sense of bad events by telling ourselves comforting stories that given them meaning.
We believe something is true because it sounds believable or we want to believe it, especially with issues of love, health, religion, and death. … ‘What is wanted is not the will to believe, but the will to find out, which is the exact opposite’.
Consistency
The more time, money, effort or pain we invest, the more we feel the need to continue, and the more highly we value something – whether or not it is right. We don’t want to waste our efforts. This way we protect our reputation and avoid the pain of accepting loss.
We associate being wrong with a treat to our self-interest. Warren Buffet says: “What the human being is best at doing is interpreting all new information so that their prior conclusion remains intact.”
We look for evidence that confirms our ideas, beliefs, and actions. Devising reasons why we might be wrong doesn’t come easily. For example, when we’ve made an investment, entered into a relationship, or made other types of commitments, we tend to seek out evidence confirming that it was the right decision and to ignore information that shows it was wrong.
“We do have a few advantages, perhaps the greatest being is that we don’t have a strategic plan. Thus, we feel no need to proceed in an ordained direction (a course leading almost invariably to silly purchase prices) but can instead simply decide what makes sense for our owners.” (Warren Buffet on – isn’t it better to stay consistent with strategic plan)
“The task of man is not to see what lies simply in the distance, but to do what lies clearly at hand,” Carlyle
We try to respond intelligently each day, each week, each month, each year to the information and challenges at hand – horrible assaults that have to be deflected, things that have to be scrambles out of, the unusual opportunities that come along – and just do the best we can in responding to those challenges. Obviously, you look ahead as far as you can. But it’s not very far. But if you respond intelligently and diligently to the challenges before you, we think you’ll tend to end up with a pretty good institution.
In the labelling technique, people try to get us committed by first applying a label to our personality or values that is consistent with the behaviour they want us to take. We often comply to later requests that are consistent with the label. (Warren Buffet discussing a negotiation technique – e.g. ‘Did you know that your managers are widely known to be cooperative and fair?’.)
How do people seduce us financially, politically or sexually? They make us first agree to a small request, so small that no one would refuse. This way they create a commitment. They then make a second and larger request (the one they wanted all along). We are then more likely to comply. This ‘foot-in-the-door technique’ is based on the principal that if people ask us to make a small commitment, we are more likely to agree to a larger request because we want to appear consistent.
When people get us to commit, we become responsible.
As Blaise Pascal wrote: “Men never do evil so completely and cheerfully as when they do it from religious conviction.”
Lucius Annaeus Seneca said: “There is nothing wrong with changing a plan when the situation has changes.” Irish writer Jonathan Swift says: “A man should never be ashamed to own that he has been in the wrong, which is saying, in other words, that he is wiser today than he was yesterday.”
Leonardo da Vinci: “We know well that mistakes are more easily detected in the works of others than in one’s own.”
Deprival Syndrome
When something we like is (or threatens to be taken away, we often value it higher. We don’t like to lose the freedom to choose how to act or believe or what to have. For example, people are likely to fight a restrictive law that takes away a benefit they have enjoyed for a long time.
Warren Buffet – A very important principle in investing is that you don’t have to make it back the way you lost it. In fact, it’s usually a mistake to try to make it back the way you lose it. … it’s all feelings, and they have no impact whatsoever…
We want and value more what is scarce or unique. We want what is (or threatens to be) less available. The less available it is, the more we desire it.
Why do I want this? For emotional or rational reasons?
Remember that people respond to immediate crisis and threats. Anything that happens gradually, they tend to put off. If we want people to take a risk, we should make them feel behind (losing). If we want them to say with the status quo or reject risk, we should make them feel safe.
Status Quo and Do-Nothing Syndrome
We want to feel good about the choices we make so we can justify our actions for others and ourselves. We are more bothered by harm that comes from action than harm that comes from inaction. We feel worse when we fail as a result of taking action than we fail from doing nothing.
Sometimes we don’t act the way we know we should. We ignore Warren Buffet’s Noah principle: “predicting rain doesn’t count; building arks does.”
Deciding to do nothing is also a decision. And the cost of doing nothing could be greater than the cost of taking an action.
Remember what you want to achieve.
Once we know what to do, we should do it. The 19th Century British biologist Thomas Henry Huxley said: “Perhaps the most valuable result for all education is the ability to make yourself do the thing you have to do when it ought to be done whether you like it or not. If is the first lesson that ought to be learned and however early a person’s training begins, it is probably the last lesson a person learns thoroughly.”
Impatience
We give more weight to the present than to the future. We seek pleasure today at a cost of what may be better in the future. We prefer an immediate reward to a delayed by maybe larger reward.
Envy and Jealousy
The 18th Century French Philosopher and Mathematician Marquis de Condorcet said: “Enjoy your own life without comparing it with that of another.” As long as you achieve your goals, it should matter if someone else does better.
Contrast comparison
We judge stimuli by differences and changes and not absolute magnitudes. We evaluate stimuli like temperature, loudness, brightness, health, status or prices based on their contrast or difference from a reference point (thermostat).
This means how we value things depends on what we compare them with.
The order in which something is presented matters. Sales people often try to sell the most expensive item first. So, the second option appears cheaper.
Also, by adding an inferior option, another option can appear more attractive. Example: Mary is looking at houses. The real estate broker knows the house he is trying to sell Mary is in poor shape and in a bad area. He starts by showing Mary bad properties in an ugly neighbourhood. Afterwards, he takes her to the house he wanted to sell her all along. Suddenly this house and the area seem great in comparison to the other houses she saw.
Evaluate people and objects by themselves and not by their contrast.
Anchoring
The present price of a stock in relation to some past quote doesn’t mean anything. The underlying business value is what matters.
Vividness and Regency
We are easily influenced when we are told stories because we relate to stories better than we do logic or fact. Drama and danger sell. The media capitalises on fear because there is money in it. Major accidents, such as plane crashes or shark attacks, grabs people’s attention and make headlines regardless of their probability.
Omission and abstract blindness
When planning, we often place too much importance on the specific future event and not enough on other possible events and their consequences that can cause the event to be delayed or not happen.
When we try to find out if one thing causes another, we only see what happened, not what didn’t happen. We only see what we focus our attention on.
Look for alternative explanations.
Consider missing information. Know what you want to achieve.
Reciprocation
A gift with our name on it is hard not to reciprocate.
A technique used in negotiations is making a bigger request, then settling for a smaller one. It also increases the chance that the person making the smaller request will live up to their end of the deal since they feel responsible for dictating the terms.
A favour or gift is most effective when it is personal, significant and unexpected.
If there is one secret of success, it lies in the ability to get the other person’s point of view and seeing things from his angle as well as from your own.
Linking and social acceptance
The deepest principle in human nature, is the craving to be appreciated.
Talk to a man about himself, and he will listen for hours.
People believe we have the same personality as those we associate with. Credibility leads to trust.
Don’t depend on the encouragement or criticism of others. “How much time he gains who does not look to see what his neighbour says or does or thinks”.
Social proof
When people are free to do as they please, they usually imitate each other. We are social animals, influenced by what we see other people doing or believing. We believe that others know more than we do. We want what others want. Since everybody else wants it, we assume there has to be a reason.
The CEO would be more likely to get his message heard if he used a spokesperson, who already supported the CEO’s ideas and who the audience saw as similar to themselves, such as a colleague.
Blindly following the lead of others can have disastrous consequences.
When we are uncertain, we have a tendency to look at people around us to see how they react. We don’t want to be the ones to stand out in a crowd and risk embarrassment for acting in a non-emergency situation. We often rationalise by saying ‘someone else probably called the police’.
If the whole table agrees…I propose we postpone further discussion of this matter to give ourselves time to develop disagreements and perhaps gain some understanding of what the decision is all about.
It’s easy in the world to live after the world’s opinion; it’s easy in solitude to live after our own; but the great man is he in the midst of the crowd keeps with perfect sweetness the independence of solitude. What is popular is not always right. If you don’t like what other people are doing, don’t do it.
Disregard what others are doing and think for yourself. Have the courage of your own knowledge and experience.
Make people responsible for their actions. Remember though, when all are accountable, no one is accountable.
Authority
In questions of science, the authority of a thousand, is not worth the humble reasoning of a single individual.
We are most easily influenced by credible authorities, those we see as both knowledgeable and trustworthy.
Blind obedience is sometimes a way to rationalise dumb actions.
When you think of the long and gloomy history of man, you will find more hideous crimes have been committed in the name of obedience, than have been committed in the name of rebellion.
Evaluate the truth of a statement on the basis of its underlying facts, without regard to the authority’s personal quality or social status.
Anyone can call themselves an expert. Separate between real and false experts.
An authority may have an interest in persuading you to believe something that is in their interest.
Sensemaking
We like it when people tell us what the future will look like. It reduces uncertainty. It doesn’t matter that no one can predict the future. We willingly pay for the existence of future-tellers.
We are quick to draw conclusions.
We love stories and storytelling. Good stories and drama get our attention. They give meaning to events. We rationalise decisions and justify choices by telling ourselves comforting stories. After an event a story is created so that the event makes sense.
Reason-respecting
When people ask us for a favour we are more likely to comply if they give us a reason.
Our brains favour the concrete and the practical over the abstract and the theoretical. We are specifically good at remembering images and spatial information. We therefore learn better if the use of ideas and patterns are illustrated through pictures, and simple and vivid real-life stories. Stories on what works and what doesn’t work increase our ability to retain what we’ve learned.
People can’t be persuaded by what they don’t understand.
Believe first and doubt later
We start assuming that the product is good for us and start looking for evidence that confirms it. Why? Because we have to believe in order to understand. Understanding and believing are two different words for the same mental process. We first believe all information we understand and only afterword’s and with effort do we evaluate, and if necessary, unbelieve it. We automatically and effortlessly believe what we see and hear and only afterword’s (sometimes) with effort do we doubt and ask questions.
Memory limitations
We remember certain things and distort or forget others. Every time we recall an event, we reconstruct our memories.
We learn better in a positive mood.
Our present knowledge influences how we remember our pasts. We often edit or entirely rewrite our previous experiences.
Do something syndrome
It seems easier to explain doing something than actively doing nothing.
It is not enough to be busy; so are the ants. The question is: What are we busy about? Don’t confuse activity with results. There is no reason to do a good job at something you shouldn’t do in the first place.
Say something syndrome
Wise men talk because they have something to say, fools because they have to say something.
Why do we always need to give an answer? Isn’t it better to say, ‘I don’t know?’
I have often regretted my speech, never my silence.
He that would live in peace and at ease, must not speak all he knows, nor judges all he sees.
Emotions
Risk is a feeling. We automatically judge how good or bad a situation is based on how we feel about it.
When we have just gone through an emotional experience. We should hold off on important decisions. The benefits of cooling off periods forces us to think things through.
Stress
The more we believe we are in control, the less vulnerable we are to the negative effects of stress.
Our cortisol levels rise in response to the degree other people order us about.
Happiness and freedom begin with a clear understanding on one principle: Some things are within our control, and some things are not. (wisdom to know the difference).
Multiple tendencies
Social proof – the CEO is doing dumb things but no one else is objecting so all directors collectively stay quiet – silence equals consent.
No man was fit to hold public office who wasn’t perfectly willing to leave it at any time. He had an identity to go back to, so he didn’t need the government’s salary.
Contextual influences
We underestimate situational factors like social pressure, roles or things over which there are no control. An example is, blaming an individual rather than a poorly designed system for failure.
Remember the roles of the prisoner and the guards, and how quickly we can adjust to the environment and the role.
The less knowledgeable we are about an issue, the more influenced we are by how it is framed.
We are influenced by the order, first or last, in which a presentation happens. The key variable is the amount of time that separates the presentations, the time which we have to make judgements, and which presentation is the most easily remembered.
We put different values on the same dollar and are more willing to risk money we have won, than money we have earned.
We live up to what is expected of us.
Some final advice from Charles Munger
I don’t want you to think we have a way of learning or behaving so we don’t make a lot of mistakes. I’m just saying that you can learn to make fewer mistakes than other people – and how to fix your mistakes faster when you do make them.
Life in part is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand.
Feelings of love, compassion, anger, fear, jealousy, and embarrassment can be explained biologically. They exist for a reason – to help us survive and reproduce.
The ancestral environment rewarded actions before thought, emotion before reason, so we survived.
He who conquers himself is truly strong.
Part 3: The Physics and Mathematics of misjudgements
Systems thinking
What are we trying to improve? What can reasonably be expected to happen? Are the net profits positive or negative?
We optimised one component at a time instead of optimising the whole (what we finally want to accomplish).
Trace out the short- and long-term consequences in numbers and effects of a proposed action to see if the net result agrees with our ultimate goal.
Ask: What key factors influence the outcome of the system and how to these factors interact? What other things may change as a consequence of some action? Given these conditions, what likely consequences (wanted and unwanted) will the proposed action have on the system, considering all the relevant factors that influence or are part of the system? Will the next result be what we want?
Predictions about the future are often predictions of past curves and present trends. This is natural since our predictions about the future are made in the present. Done believe people who say they can forecast unforeseeable variables. Massive amounts of information, advanced computers or fancy mathematical formulas don’t help.
Scale and limits
People’s behaviour may change when we change the scale of a group. What works well in a group of one size may not work at all in a group of another size.
Studies show that groups of about 150 individuals are common in clans of hunter-gathers, and military units.
A few individuals cause most of the problems. It is estimated that about 5 per cent of movies earn about 80-90 per cent of profits in the movie industry.
The performance of most systems is constrained by the performance of its weakest link.
When trying to improve the performance of a system, fist find out the systems key constraints – which may be physical (capacity, material, the market) or nonphysical (policies, rules, measurements – and its cause and effect relationship with the system.
Causes
In order to solve problems or achieve goals, we must first understand what causes the result we want to accomplish.
If a business measured its performance on the amount of steel it produced, they will get a lot of steel produced. But the amount of produced kilo steel is only one part of the equation. It’s better to ask: What is the equation that achieves what we want to accomplish?
We believe that cause resembles its effect – for example, that large or important effects must have large causes or that complicated outcomes have complicated underlying reasons.
An event is random, when we don’t have enough information to determine its outcome in advance.
We may solve the symptoms but not the cause of the problem.
Look at where the bullet holes are – During WW2 statistician Abraham Wald tried to determine where one should add extra armour to airplanes. Based on the patterns of bullet holes in the returning planes, he suggested that the parts not hit should be protected with extra armour. How could he reach that conclusion? Because he also considered the planes that didn’t return. Assume that all planes had been hit more or less uniformly. Some planes hit in marked areas where still able to return. This means that planes that didn’t return were most likely hit somewhere else – in unmarked places. These were the areas that needed more armour.
We always need to consider confirming and disconfirming evidence. (like Sherlock Holmes, what did not appear).
Numbers and their meaning
Something is only cheap or expensive in relation to something else.
Gambler’s fallacy – when we believe that when something has continued for a period of time, it goes back to the other option.
We should never risk something we have and need for something we don’t need.
Whenever a really bright person has a lot of money and goes broke, it’s because of leverage…it’s almost impossible to go broke without borrowed money being in the equation.
Scenarios
We often underestimate the large number of things that may happen in the future or all opportunities for failure that may cause a project to go wrong. We often underestimate the number of steps, people and decisions involved. We also often forget the reliability of a system is a function of the whole system. The weakest link sets the upper limit for the whole chain.
Don’t find fault, find a remedy. Don’t assign blame, look for causes and prevention methods. Design safety into systems. Blame does little to improve anything.
Coincidence and miracles
We notice certain things and ignore others. We select and talk about the amazing event, not the ordinary one. We see coincidences after they happen. We don’t see them before they happen. We underestimate how many opportunities there are for ‘unlikely’ events to happen.
Humans are pattern seeking, storytelling animals. We look for and find patterns in the world and in our lives, then weave narratives around those patterns to bring them to life and give them meaning.
We often pay little or no attention to times when nothing happened (Sherlock Holmes).
Misrepresentative evidence
Statistics are a record of the past, not a prediction of the future.
Conditions relating to technology and all aspects of human behaviour can make the future a lot different from the past.
Humans make a decision on the data they can count well. Not the data that’s difficult to count.
We’d rather be roughly right than precisely wrong.
Post-mortem
We should confess our errors and learn from them.
Given the information was available, should I have been able to predict what was going to happen?
Always analyse how a deal worked out.
Make possible predictions about human behaviour. If you can do that, it will work out quite well.
Part 4: Guidelines to better thinking
The purpose of this part is to explore tools that provide a foundation for rational thinking. Ideas that helps us when achieving goals, explaining ‘why’, preventing and reducing mistakes, solving problems and evaluating statements.
Models of reality
Is there anything I can do to make my whole life and my whole mental process better?
A model is an idea that helps us understand how the world works. Models illustrate consequences and answer questions like ‘why’ and ‘how’.
Think ‘what sentence contains the most information in the fewest words?’.
All knowledge is subject to change as new information arrives. This means we have to continuously learn and re-learn.
Meaning
Words or names don’t constitute knowledge. Knowing the name of something doesn’t help us understand it. Since understanding implies action and accomplishment, one way of understanding is to see what happens.
Meaning of words: what do the word mean? What do they imply? Do they mean anything? Can we translate words, ideas or statements into an ordinary situation that tells us something?
When describing something, tell it as it is and use words that people understand, and in terms of the ideas with which they find familiar. Albert Einstein said, “if you can’t explain it simply, you don’t understand it well enough”.
Ask: what do I really want to say?
One reason for miscommunication is that words mean one thing to you and another to the person you’re talking to. Use simple words.
We might think a business venture is risky. That’s because it’s risky for us. It might not be for someone else.
Does the ice cream store have something people need or want now and in the future (demand), that no one else has (competitive advantage) or can copy or get now and in the future (sustainable) and can these advantages be translated into business value? For example, why do customers choose to buy ice cream from this store rather than anywhere else? It is location, assortment, taste, service, and price? What do they associate with the store and its products? What is important to customers? Why do they come back?
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
By observing “what happens” we can better understand reality.
Simplification
Keep things simple.
You can’t believe how hard it is for people to be simple, how much they fear being simple. They worry that if they are simple people will think they’re simple minded. In reality of course, it’s just the reverse. Clear tough-minded people are the simplest. Charlie Munger says, if something is too hard, we simply move onto something else.
Make problems easier to solve. Use a pencil and paper instead of a computer. Eliminate everything except the essentials. Draw a picture of the problem
Dispose of the easy decisions, so your brain isn’t cluttered with them.
There often just a few actions that produce most of what we’re trying to achieve. There are only a few decisions of real importance.
Turn off the noise and look at what is relevant. The big picture. Ask: Why am I doing this? What really matters?
Deal with situations in life by knowing what to avoid. We have learned to avoid difficult business problems at BH. We have concentrated on one-foot hurdles. Stick with the easy and obvious rather than resolving the difficult.
You can’t make a good deal with a bad person. Deal with people you admire and trust.
The difference between a good business and a bad one, is a good business throws up one easy decision after another. A good way to tell a bad business is which one is throwing management bloopers time after time.
A few years ago, they were growing shrimp at coke. Loss of focus is what worries. Keep the main thing, the main thing.
The formulation of a problem is often more essential than its solution, which may be merely a matter of mathematical or experimental skill.
Sometimes the correlation of the facts take time. After an event when you are playing the violin, then by Jove you have it.
Focus on the work and shut out the world. Have patience in waiting for opportunities. Resist the temptation to always do something. If we are in a hurry, it’s easier to make misjudgements.
Rules and filters
No matter what the rate, trying to write good contracts with bad people doesn’t work.
Focus on avoiding dumb decisions, rather than making brilliant ones.
Warren Buffett evaluates a business idea with six filters;
Can I understand it? If it passes this filter.
Does it look like it has some kind of sustainable competitive advantage? If it passes this filter.
Is the management composed of able and honest people? If it passes this filter.
Is the price right? If it passes this filter.
Disprove – how can the business get killed?
What are the consequences if I’m wrong?
If it passes these filters, we write a cheque.
Eliminate anything that’s easy so as to conserve effort.
Goals
Even if we don’t know what we want, we often know what we don’t want.
Focus on the right problems. What should we do first? What is the most important problem?
Alternatives
Every minute we choose to spend on one thing is a minute unavailable to spend on another.
What is out time worth?
Consequences
Always ask: And then what?
Reduce risk in one area, may increase it in another.
Quantification
Talk in how large? How scarce?
What does maths do? It helps us develop consequences and evaluate things than make sense. And math is stable.
When we translate something into numbers, we can make comparisons. How can we make a decision is we can’t measure it against a yardstick?
Be suspicious of CEOs who pretend to know the future. Managers that always promise to make the numbers, usually end up ‘making up the numbers’.
Evidence
There are in fact two things: science and opinion; the former begets knowledge, the latter ignorance.
Think like scientists, who describe the world as it is;
Problem or observation – We wonder what happens and why
Guess why – we try to find a probable solution
Predict consequences – We work out the logical consequences
Test – If I do this, what will happen? We compare the implied consequences of our guess with evidence. We report our results honestly.
Instead of verifying a statement, it is sometimes better to prove it false. Look for evidence that disproves the explanation. Think: what test can disprove this?
The past record is the best guide for future behaviour.
Engage in self-criticism. Question your assumptions. Explain the opposite of your beliefs. Ask: assume I’m wrong how will I know?
The process of backward thinking forces objectivity – let’s try and disprove it.
Most people often try to confirm something. But try to, take your assumptions and disprove them.
Backwards thinking
Remember the backwards thinking – think of all the top ways we could fail this client or fail as a business i.e. bad service, fail to call clients, write that on the board. Those worse things flipped are the things you need to concentrate on – creating your business values. The things you value the most.
A lot of success in business comes from knowing what you want to avoid.
Start with zero thinking – start with a blank sheet of paper and ask; if we weren’t already doing what we do, how would we best achieve our goal?
Risk
Cap the downside.
Think what can go wrong. What is the magnitude of possible loss?
What a person should do: Do the best you can do. Never tell a lie. If you say you’re going to do it, get it done. Nobody gives a shit about an excuse. Leave for the meeting early. Don’t be late, but if you are late, don’t bother giving an excuse. Just apologise. Return calls quickly. The other thing is a five second no. Make your mind up quickly. Don’t leave people hanging.
Attitudes
Trust in what you don’t want. Let that be your guide.
Stay out of anything questionable and deal with honourable people. Ask: Would I be willing to see my action described on the front of a paper?
There is enormous efficiency in trusting people with good character.
When you rise up, become an exemplar to others.
The only way to be loved is to be lovable.
Having a positive attitude causes the body to produce pain-suppressing hormones, called endorphins, which work like morphine.
Don’t look for the money, look for something you love.
Take the attitude, that it’s always your fault, and just fix it the best you can. This is the ‘iron prescription’.
’Be curious and open minded. Always ask ‘Why?’. We should be children again and see the world through the eyes of a curious child without preconceptions.“
