Charlie Munger’s Guide To Making Better Decisions (Part Two)

When Robert Frost famously advised you, me, and everybody between to take the road less traveled, he was mostly being poetic.

The message he intended for you to take away was this:

Don’t follow the masses. Be yourself.

Okay, sure. You know what? I like this advice.

You are uniquely weird, and you should celebrate that fact. Use it to your advantage. Strikeout in pursuit of dreams only you can catch.

But this advice, to take the road less traveled, is pretty bad advice if you apply it to the pursuit of success.

That is, don’t go reinventing the wheel. The wheel is perfectly fine as it is.

You’re wasting your time and energy and ability if you go taking lesser-traveled roads only to find they all ultimately lead to the same city, ‘cept this city is of the first-come, first-serve variety and if you’d only taken the actually paved road, you would’ve gotten there before all the traveling hordes.

So what’s all this talk about well-trampled roads got to do with you, billionaires, and making better decisions?

Everything.

While Frost’s advice is sound in spirit, in application, you should always take the more traveled road. That is, you should learn from those who’ve come before, glean what you can from their systems, and model their behaviors.

After all, if it worked for them, then it’s proven. It can work for you.

And that’s why we’re diving into the decision-making practices of one of the world’s most successful men (that is, if you were to grade success in relation to monetary wealth), Charlie Munger.

If you’re just joining us for this five-part series, I highly recommend you leap back to part one before moving on. We lay the context and groundwork for why Charlie’s decision-making systems are worth following.

Charlie Munger’s Guide to Making Better Decisions (Part One)

For the rest of you, I’ll assume you’ve done the requisite reading and you’re ready to continue learning another 5 of the 25 Cognitive Biases Charlie Munger warns against making in your own decision-making practices.

These biases are rooted not only in decades of experiential knowledge but also in psychology. So that is to say, there’s a lot to be learned by being generally aware of these 25 Cognitive Biases.

And since ignorance is the enemy, let’s get to work and shed some light on 5 more of the Cognitive Biases likely plaguing your own high-level decision making.

Curiosity Tendency

They say curiosity killed the cat…well, it’s probably killed far more humans.

Curiosity is one of humanity’s defining characteristics. It’s our deeply embedded desire to understand the world around us that has lead to the countless discoveries, least among which being the discovery of self.

But curiosity is both a blessing and a curse (as all those dead cats can attest).

Curiosity is one of the easiest behavioral feedback loops to exploit. Look no further than the way Game of Thrones ends its episodes on cliffhangers, or the way Facebook is a never-ending feed enticing you to scroll just a bit further.

The brain’s dopamine reward center is so easily exploited that it should almost be criminal.

But it’s not, and therefore it’s up to you to be on guard against the manipulative efforts of nefarious entities looking to negatively influence your decision making by exploiting your inherent curiosity.

Kantian Fairness Tendency

If you’re like any well-socialized individual, you’re well aware of The Golden Rule.

Namely, do unto others as you would have done unto you.

This is a fundamental presupposition of society. It is the dictate that claims:

If I do right by you, you will do right by me.

It’s the glue that binds the social contract.

If you break the contract, you’ll quickly find yourself without friends, allies, or trusted confidants. But on the plus side, you’ll have a surplus of enemies. So that’s something.

Be aware, however, that the Kantian Fairness Tendency is also (like the previous tendency) easily exploited.

For instance, excessive fairness incentivizes poor behavior.

Pay everybody the same wage and you’ll quickly experience productivity stagnation where the sum total of the groups output inevitably droops to that of the lowest common denominator.

To avoid this tendency in the creation of your own incentive systems, you’d do well to leave the concept of fairness out of the equation. Instead, reward productivity and ability.

Envy/Jealousy Tendency

“It is not greed that drives the world, but envy.”

Warren Buffet

We, somewhat evolved monkeys, developed in a world of scarce resources. (Which, to be clear, is not to suggest that we’ve solved the question of resources and that all people are uniformly living in abundance. We’ve still got a ways to go, but by and large, we’re better off now than ever before as a species.)

The scarcity mindset that dominated the world of our ancestors is deeply engrained in our way of thinking, even to this day. As a result, we have a constant desire to acquire, consume, and own.

When the object of our desire is in the possession of someone else, well, that gives way to envy and jealousy. If left unchecked these emotions can quickly develop into a Disliking/Hating Tendency that is mighty hard to break out of.

Unfortunately, resolving feelings of jealousy or envy is quite difficult on account of the fact that these two emotions are quite often seen as childish. Therefore, we’re trained from an early age to keep a tight lock and key on the outward expression of these desires.

Which, you know, isn’t a great way of actually resolving a malingering emotion.

So there’s that.

But what are we to do?

Well, you can start by learning how to be happy with what you’ve got. Get off the Hedonic Treadmill and bask in where you are and not where you wish you were.

I know, this is easier said than done, but really diving into the details of how we go about getting off the Hedonic Treadmill is a much longer article for another time. I promise I’ll have it out soon.

Reciprocation Tendency

Benjamin Franklin was a big advocate of getting people to like you by asking them for a favor.

At first glance, this might seem strange. If you want somebody to like you, shouldn’t you offer to do them a favor?

Well, yeah, actually that works, too.

Regardless of which way you go about it, using the psychology of reciprocity is an incredibly powerful way to get people to feel as though they owe you.

In the example of asking somebody else for a favor, you are reversing the typical approach to reciprocity by outwardly imposing yourself on somebody else.

You might think this would make you a nuisance, but studies find that we hold the people who we do nice things for in higher regard. Think back to the Liking/Loving Tendency to really understand the dynamics at play.

This asking-for-a-favor trick works because as soon as that person agrees to help, they start justifying that decision under the guise of:

Obviously I wouldn’t help them if I didn’t like them. And since I am helping them, I, therefore, must like them.

Enter the Liking/Loving Tendency. Boom. Reciprocity.

This works equally well in the inverse.

Do somebody a favor and they will experience a subtle, subconscious imbalance that they will feel compelled to repay.

To be clear, we are talking about this principle of reciprocity not so that you are better able to manipulate people into compliance. No, it’s so that you can understand the dynamics of favors and how they can be used against you.

Whether you are giving or receiving a favor, the reciprocity tendency is immediately put into play.

Understanding this interplay is vital to diffusing its potentially negative manipulative effects.

1Influence-From-Mere-Association Tendency

Mere proximity, or association, is one cheap way of manipulating people.

And yet it is one of the most pervasive in today’s modern marketing environment.

This is the reason Nike spent untold oodles of money developing Air Jordan’s. I mean, ask yourself objectively: What does Michael Jordan know about making shoes?

Why should you really care to wear a shoe that has his name on it?

By all objective markers, a shoe with his name on it is no different than the shoe without, and yet… one of those shoes can demand a significantly higher price. One of those shoes can drive kids to near insanity in the drive to obtain them.

That is the power of association and it can be employed both subtly and ostentatiously.

In either instance, the underlying point is: It works.

Be aware when you are attributing the possibility of future success or value on an individual’s past achievement. Especially when that past achievement actually has nothing to do with the thing you’re currently dealing with.

Conclusion

You’ve done it. You’ve reached the end of Part Two of A Billionaire’s Guide To Making Better Decisions.

By now you’ve learned 10 of the Cognitive Biases that blind us and lead to poor decision making. As we did in Part One, I want you to sift through the above mentioned 5 tendencies and pick out the one that you’ve most recently committed. Jot it down on a piece of paper and then write out how you plan to combat that tendency in the future.

Remember, without a clearly articulated plan of alternative behavior, you’ll simply default to past models of conduct.

Check out Part One and Part Three of this series below.

Charlie Munger’s Guide to Making Better Decisions (Part One)