Charlie Munger has spent a lifetime attempting to avoid stupid mistakes. He’s given a number of speeches on his experience over the years, that he ultimately compiled into one called: The Psychology of Human Misjudgment.
Munger noticed patterns of irrational behavior that led to repeated mistakes, so he set out to finds ways to understand psychology in order to avoid the mistakes himself:
I was greatly helped in my quest by two turns of mind. First, I had long looked for insight by inversion in the intense manner counseled by the great algebraist, Jacobi: “Invest, always invert.” I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes. Second, I became so avid a collector of instances of bad judgment that I paid no attention to boundaries between professional territories. After all, why should I search for some tiny, unimportant, hard-to-find new stupidity in my own field when some large, important, easy-to-find stupidity was just over the fence in the other fellow’s professional territory? Besides, I could already see that real-world problems didn’t neatly lie within territorial boundaries. They jumped right across.
Through inversion, stupidity, and bad judgment, he came up 25 tendencies we’re all susceptible to whether we know it or not. What follows is a brief breakdown of those tendencies (though, I recommend reading the entire speech). Continue Reading…