Charles Munger has made a career of avoiding common errors in judgment. The longtime vice chairman of Berkshire Hathaway Berkshire Hathaway long ago assembled a checklist of 25 tendencies that lead to what he called “psychology-based dysfunction”. In other words, they are predictable traps that cause professionals to make bad decisions.
Mr. Munger collected these misjudgments in a lengthy, dense document he called The Psychology of Human Misjudgment.
Unfortunately, you can’t live by what you can’t remember. Most of us can’t remember 25 ways we act dumb, misguided, or rash… especially at the time we are in the middle of acting dumb, misguided, or rash.
To solve that problem, I adapted the 25 tendencies into this much shorter checklist. Some – but not all – of these items include an “antidote.” These are steps you can take to counterbalance the negative tendency. But many have no antidote other than for you to be fully aware that, like all of us, you possess certain tendencies that can cause you to make misjudgments.
1.) Reward Punishment Superresponse: Never underestimate the power of incentives to change behavior. Antidote: Beware of advice from – and actions by – people who are rewarded for certain outcomes.
2.) Liking/Loving: You are not objective about people you like.
3.) Disliking/Hating: Hatred causes distorted thinking and blindness to the facts.
4.) Doubt Avoidance: To remove doubt, people rush to decide. Antidote: Only decide when you have sufficient information to make a sound judgment.