Poor Charlie's Almanack - Expanded Third Edition

Charlie Munger was Warren Buffet’s business partner.

He said that you have to use multiple mental models when thinking, ask “what does economics say about this?” “What does mathematics?”

He helped me think in terms of heuristics, there are 25 common shortcuts our mind defaults to when thinking that we are all susceptible to.

Munger - "I am a biography nut myself. And I think when you're trying to learn the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among 'the eminent dead,' but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It's way better than just getting the basic concepts."

"People couldn't believe that I suddenly made myself a subordinate partner to Warren, but there are some people that it is okay to be a subordinate partner to. I didn't have the kind of ego that prevented it. There are always some people who will be better at something than you are. You have to learn to be a follower before you become a leader. People should learn to play all roles"

Charlie believes in the mindset of Ben Franklin: Franklin used his self-made wealth to achieve financial independence so he could concentrate on societal improvement.

Charlie has a desire to understand exactly what makes things happen. He wants to get to the bottom of everything, whether it's something of serious interest to him or not. Anything that comes to his attention, he wants to know more about it and understand it and figure out what makes it tick
He knows how to take all of his brains and all of his energy and all of his thought and focus exactly on a single problem, to the exclusion of everything else.

Chapter 2: the Munger Approach to Life, Learning, and Decision Making

Munger's "Multiple Mental Models" approach to business analysis and assessment.

You must know the big ideas and use them routinely - all of them, not just a few. Most people are trained in one model, economics, for example, and try to solve all problems in one way. As the saying goes... "to the man with a hammer, the world looks like a nail" This is the worst way to handle problems.

You have to realize the truth of biologist Julian Huxley's idea that, "life is just one damn relatedness after another" So you must have the models, and you must see the relatedness and the effects from the relatedness.

Charlie seeks to discover the universe hitched to each of his investment candidates by gaining a firm grip on most of the relevant factors compromising both its internal and external environment.

When several models combine, you get lollapalooza effects; this is when two, three, or four forces are all operating in the same direction. And frequently you don't get simple addition. It's often like a critical mass in physics where you get a nuclear explosion if you get to a certain point of mass - and you don't get anything much worth seeing if you don't reach that mass.

There is no better teacher than history in determining the future... there are answers worth billions of dollars in a $30 history book.

Perhaps the most valuable result of all education is the ability to do the thing you have to do, when it ought to be done, whether you like it or not. It is the first lesson that ought to be learned and however early a man's training begins, it is probably the last lesson he learns thoroughly.

Munger's clarity is hard won: the product of a lifetime of studying the patterns of human behavior, business systems, and a myriad of other scientific disciplines.

Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles.

So when Charlie likes a business, he makes a very large bet and typically holds the position for a very long period. Charlie calls it "sitting on your ass investing" and cites its benefits: "You're paying less to brokers, you're listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentage points per annum.

When Warren Buffet lectures at business schools, he says, "I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches - representing all the investments that you get to make in a lifetime. And once you'd punched through the card, you couldn't make and more investments at all. Under those rules, you'd really think carefully about what you did, and you'd be forced to load up on what you'd really thought about. You'd do so much better.

Charlie generally focuses first on what to avoid, before he considers the affirmative steps he will take in a given situation.... "All I want to know is where I'm going to die, so I'll never go there"

In business and life, Charlie gains enormous advantage by summarily eliminating the unpromising portions of the "chess board," freeing his time and attention for the more promising and productive regions...... continued below👇🏼

Charlie refers to a company's competitive advantage as its "moat": the virtual physical barrier it presents against incursions. Superior companies have deep moats that are continuously widened to provide enduring protection.

A great business at a fair price is superior to a fair business at a great price

Don't score yourself on whether you won your hand or not, instead score yourself on how well you played the hand you got. If you were dealt a winning hand, but barely won, you have lost. Inversely, it is also possible to lose, but do the absolute best you could. When investing, if you're dealt the right hand at the right time... win big.

The limitations of formulas:

Mimicking the herd invites regression to the mean (merely average performance)

Enjoy the process along with the proceeds, because the process is where you live.

Honesty is the best policy: Taking advantage of a cheap stock price on the stock exchange is one thing, but taking advantage of business partners or old ladies is something else, something Charlie just doesn't do.

Life is more than being shrewd in wealth accumulation.

Beware of envy. The idea of caring that someone is making money faster than you are is one of the deadly sins. Envy is a really stupid sin because it's the only one you could never possibly have any fun at.

Spend each day trying to be a little wiser than when you woke up. Step by step you get ahead, but not necessarily in fast spurts.

In his whole life, Charlie says he has never met a wise person who doesn't read all the time. Charlie says: "my children laugh at me. They think I'm a book with a couple of legs sticking out"

AVOID DEBT. Debt is bad

Charlie/Carson's prescription for sure misery:

ingesting chemicals in an effort to alter mood or perception.
Envy
Resentment
Unreliability. Unreliability leads to distrust and exclusion from the 1%
Only learn from your experiences and neglect the wisdom of others and the lessons they learned from their mistakes
Give up when you fail.

Often the simplest way to arrive at a solution to a problem is to invert. In the nature of things, many hard problems are best solved when addressed backward. In approaching the study of how to create X, study how to create non-X.

Why, why, why, if you always tell people why, they'll understand it better, they'll consider it more important, and they'll be more likely to comply.

When asked what a young person should look for in a career, Charlie responded with these three rules:

Don't sell anything you wouldn't buy yourself
Don't work for anyone you don't respect and admire
Work only with people you enjoy

Avoid heavy ideology. Ideology that makes you absolutely sure that the minimum wage should be raised or that it shouldn't—and its the kind of holy construct where you 'know' you're right—makes you a bit nuts

Failure to handle psychological denial is a common way for people to go broke. You've made an enormous commitment to something. You've poured effort and money in. And the more you put in, the more that the whole consistency principle makes you think, "Now it has to work. If I put in a little more, then it'll work". Your ability to handle those situations is critical.

And deprival super-reaction syndrome also comes in: you're going to lose the whole thing if you don't put in a little more. People go broke that way - because they can't stop, rethink, and say, "I can afford to write this one off and live to fight again. I don't have to pursue this thing as an obsession in a way that will break me"

"I don't think there's a one size fits all investment strategy that I can give you. Mine works for me. But, in part, that's because I'm good at taking losses. I can take 'em psychologically. And besides, I have very few. The combination works fine."

In effect, you've got to know what you know and what you don't know. What could possibly be more useful in life than that?

Indirection is a valuable method when teaching. If someone comes to you and asks to make decision A or decision B, instead of telling them which decision to make and why, make them do the wrong decision (as long as the repercussions are only temporary and relatively minor) so that they have to make a slight mental reach and the lesson is ingrained forever.

It's enormously helpful when your serving clients or otherwise to try to persuade someone through use of vivid little examples that pound the point home in a way that really works.

What works best in most cases of persuasion is to appeal to a man's interest

"I like the navy system. If you're a captain and you've been up for 24 hours straight and have to go to sleep and you turn the ship over to a competent first mate in tough conditions and the first mate takes the ship aground, the captain's naval career is over"

The navy model forces you to pay extra attention when conditions are tough, because you know there can be no excuse.

If your ship goes aground, it doesn't really matter why. Your ship still went aground and its your ship.

“The man who doesn't read good books has no advantage over the man who can't read them”

Mark Twain

5 general notions Charlie finds helpful in solving problems:

the first helpful notion is that it is usually best to simplify problems by deciding big "no-brainer" questions first.
The second helpful notion mimics Galileo's conclusion that scientific reality is often revealed only by math as if math was the language of God.
The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so he could never go there. Many problems can't be solved forward. This is why the Pythagoreans thought in reverse to prove that the square root of two was an irrational number.
The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there is one extremely important qualification: You must think in a multidisciplinary manner. You must routinely use all the easy-to-learn concepts from the freshman course in every basic subject. If, in your thinking, you rely entirely on others, often through the purchase of professional advice, you will suffer much calamity.
The fifth helpful notion is that really big effects, lollapalooza effects, will often only come from a large combination of factors.

Coca-Cola business plan deconstruction case study:

"We can see from the introductory course in psychology that we are going into the business of creating and maintaining conditioned reflexes. The "Coca-Cola" trade name and trade dress will act as the stimuli, and the purchase and ingestion of our beverage will be the desired responses.

And how does one create and maintain conditioned reflexes? Well, the psychology text gives us two answers: (1) by operant conditioning and (2) by classical conditioning, often called Pavlovian conditioning.

And, since we want a lollapalooza result, we must use both conditioning techniques, and all we can invent to enhance the effects of each.

The operant conditioning part of our problem is easy to solve. We need to only (1) maximize rewards of our beverage's ingestion and (2) minimize possibilities that desired reflexes, once created by us, will be extinguished through operant conditioning by proprietors of competing products.

For operant conditioning rewards, there are only a few categories we will find practical:

Food value in calories or other outputs
Flavor, texture, and aroma acting as stimuli to consumption under neural preprogramming of man
Stimulus, as by sugar or caffeine
Cooling effect when man is too warm or warming effect when man is too cool.

Wanting a lollapalooza result, we will naturally include rewards in all the categories.

And, to counteract possibilities that desired operant-conditioned reflexes, once created by us, will be extinguished by operant-conditioning-employing competing products, there is an obvious answer: We will make if a permanent obsession in our company that our beverage, as fast as practicable, will at all times be available everywhere in the world. After all, a competing product, if it is never tried, can't act as a reward creating a conflicting habit. Every spouse knows that.

We must next consider the Pavlovian conditioning we must also use. In Pavlovian conditioning, powerful effects come from mere association. The brain of man yearns for the type of beverage held by the pretty woman he can't have, like the neural system of Pavlov's dog causes it to salivate at the bell it can't eat. So, Glotz, we must use every sort of of decent, honorable Pavlovian conditioning we can think of. For as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other things consumers like or admire.

Such extensive Pavlovian conditioning will cost a lot of money, particularly for advertising. We will spend big money as far ahead as we can imagine. But the money will be well spent.

This is because as we expand fast into our new-beverage market, our competitors will face gross disadvantages of scale in buying advertising to create the Pavlovian conditioning they need.

Considering Pavlovian effects, we have wisely chosen the exotic and expensive-sounding name "Coca-Cola" instead of a pedestrian name like "Glotz's Sugared, Caffeinated Water"

For similar reasons, it will be wise to have our beverage look pretty much like wine instead of sugared water. And we will carbonate our water, making our product seem like champagne, or some other expensive beverage, while making the flavor better and making imitation harder for competitors.

There is also the "monkey-see, monkey-do" aspect of human nature that psychologists often called social proof.

Social proof, the imitative consumption of our beverage triggered by the mere sight of consumption, will not only help induce new consumers to try our beverage, but will also bolster perceived rewards from consumption (higher social status from being in possession of a sought-after drink).

We will always take this powerful social-proof factor into account as we design advertising and sales promotion and as we forego present profit to enhance present and future consumption (which will yield exponential profit return in the future)

Through Pavlovian conditioning, social proof, and operant conditioning, we are going to start something like an autocatalytic reaction in chemistry, precisely the sort of multi-factor triggered lollapalooza effect we need.

The logistics and distribution strategy of our business will be simple. There are only two practical ways to sell our beverage: (1) as syrup to fountains and restaurants and (2) as a complete product in a container.

Wanting lollapalooza results, naturally, we will do it both ways.

This brings us to a final reality check for our business plan. We will, once more, think in reverse like Jacobi. What must we avoid because we don't want it? Four answers seem clear:

First, we must avoid the protective, cloying, stop-consumption effects of aftertaste that are a standard part of physiology. We must find a wonderful no-aftertaste flavor by trial and error and will thereby solve this problem.
Second, we must avoid ever losing even half of our trademarked name. There should never be a sale of another type of "cola" if not by us. We must be the sole proprietor of any brand including either "coca" or "cola"
Third, with so much success coming, we must avoid the ill repercussions from envy, because envy is so much a part of human nature. The best way to avoid envy, recognized by Aristotle, is to deserve the success we get. We will be fanatic about product quality, quality of product presentation, and reasonableness of prices, considering the harmless pleasures we will provide.
Fourth, we must avoid making any huge and sudden change in our flavor. Even if a new flavor performs better in blind taste tests, changing to that new flavor would be a foolish thing to do. This follows because, under such conditions, our old flavor will be so entrenched in consumer preference by psychological effects that a big flavor change would do us little good. And it could do us immeasurable harm by triggering deprival super-reaction syndrome in consumers, which is what makes "take-aways" so hard to get in any type of negotiation and helps make gamblers so irrational.

Fin, Mungers business plan deconstruction for coca-cola

"I read everything: annual reports, 10k's, 10Q's, biographies, histories, five newspapers a day. On airplanes, I read the instructions on the backs of the seats. Reading is key. Reading has made me rich over time" -Warren Buffett

When persuading, appeal to interest and not to reason

You've got a complex system, and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, yet there is no precise numbering you can put to them. You know they're important, but you don't have any numbers. Well practically everybody (1) outweighs the stuff that can be numbered because it yields to the statistical techniques they're taught in academia and (2) doesn't mix in the hard-to-measure stuff that might be more important.

Always think (especially in economics) about second and and higher-order consequences.

The safest way to get what you want is to deserve what you want. Its the golden rule.

The acquisition of wisdom should be seen as a moral duty. You are not going to get very far in life based on what you already know. I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines.

Just as civilization can only progress when it invents the method of invention, you can progress only when you learn the method of learning.

The two things Warren Buffet devotes the largest chunks if his time to are reading and conversing with highly gifted people one-on-one.

Sloth and unreliability will fail. If you're unreliable, it doesn't matter what your virtues are, you're going to crater immediately. Avoid sloth and unreliability.

Another thing is to avoid extremely intense political ideology, because it cabbages up one's mind. If you're young, it's particularly easy to drift into intense and foolish political ideology and never get out. It presents a big danger for the only mind you're ever going to have.

"I have what I call an "Iron Prescription" that helps me keep sane when I drift toward preferring one intense ideology over another. I feel that I'm not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.

Another thing that often causes folly is "self-serving bias", often subconscious, to which we are all subject. You want to get self serving bias out of your mental routines. Thinking that what's good for you is good for everybody , and rationalizing foolish or evil conduct based on your subconscious tendency to serve yourself, is a terrible way to think. Drive it out because you want to be wise not foolish, and good not evil.

You will also have to allow, in your own cognition and conduct, for the self-serving bias of everyone else, because most people will not be aware or will not be able to remove it.

Use self-serving bias to persuade. Appeal to interest, not reason.

4 more things to avoid:

Envy
Resentment
Revenge
Self-Pity

Self pity can get pretty close to paranoia, and paranoia is one of the very hardest things to reverse. Even if your child is dying of cancer, self-pity is not going to help. Self-pity is the standard response, but you can train yourself out of it.

Another thing you must avoid is being subjected to perverse incentives. You don't want to be in an incentive system that is rewarding you if you behave more and more foolishly.

Perverse associations are also to be avoided. You particularly want to avoid working under somebody you don't admire and don't want to be like.

Engaging in routines that allow you to maintain objectivity are, of course, helpful to cognition. We all remember that Darwin paid special attention to disconfirming evidence, particularly when it disconfirmed something he believed and loved.

One also needs checklist routines. They prevent a lot of errors. You should possess a wide-ranging elementary wisdom but also go through mental checklist routines while using it. There is no other procedure that will serve you better.

Another thing that I have found is that intense interest in any subject is indispensable if you're really going to excel at it. I could force myself to be fairly good at a lot of things, but I couldn't excel in anything in which I didn't have an intense interest.

Another thing you have to do is have a lot of assiduity. I like that word because it means "sit down on your ass until you've done it"

Another thing to cope with is that life is very likely to provide terrible blows, unfair blows. Some people recover, others don't. The way to get up is to adopt the attitude of Epictetus: every mischance creates an opportunity to lean something useful. He believed that it was one's duty to not become immersed in self-pity and instead utilize each terrible blow in a constructive fashion.

Another thing is to go through life preparing for trouble. Anticipate the rainy day.

Charlie Munger's Section on Cognitive Biases:

An exaggerated example of human cognitive deficiency can be seen in the cognitive deficiency of ants. The ant behavior system has limitations because of its limited nerve-system repertoire. When an any smells a pheromone given off by a dead ant's body, it automatically responds by carrying the body outside of the hive. Even when a live ant is painted with the pheromone, the ant will immediately carry out that kicking and squirming ant because its brain said that that ant must be dead, and must be taken out, all because it smelled the pheromone.

Another type of ant can be misled by circumstance, as its brain directs the ant, when walking, to follow the ant ahead. And when these ants stumble and end up walking in a big circle, they sometimes walk round and round until they perish.

These are extreme examples, but are very real in our lives.

Cognition is ordinarily situation-dependent, so that different situations often cause different conclusions, even when when the same person is thinking in the same general subject area.

Following are errors which are generally useful, but often misled. Included are their descriptions and antidotes.

1. Reward and Punishment Super-response Tendency

The best way to harness this bias is to get the incentives right.

One of the most important consequences of incentive superpower is "incentive-caused bias" which is particularly dangerous. A man has an accumulated nature making him a pretty decent fellow, and yet, driven both consciously and and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior.

Widespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one's professional advisor.

The general attitudes here are (1) especially fear professional advice when is is especially good for the advisor, and (2) learn and use the basic elements of your advisor's trade as you deal with them

The strong tendency of employees to rationalize bad conduct in order to get rewards requires many antidotes.

First, it is important to have sound accounting theory and practice

"Granny's Rule" is a powerful incentive-based rule that can be used to improve oneself, often with reward items you already possess. Granny's Rule states that children must eat their carrots before they get dessert. The business version follows that executives should force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks.

2. Liking/Loving Tendency

One of the very practical consequences of Liking/Loving Tendency is that it acts as a conditioning device that:

makes the liker or lover tend (1) to ignore faults of, and comply to the wishes of the object of his affection
(2) to favor people merely associated with the object of his affection
(3) to distort other facts to facilitate love.

This phenomenon also works in reverse; admiration also causes or intensifies feelings of liking or love.

With this "feedback mode" in place, the consequences can be extreme.

3. Disliking/Hating Tendency

Disliking/Hating tendency acts as a conditioning device that makes the disliker/hater tend to:

(1) ignore virtues in the object of dislike
(2) dislike people, products, and actions merely associated with the object of dislike
(3) distort other facts to facilitate hatred

4. Doubt-Avoidance Tendency

The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision.

This makes sense from a Darwinian perspective, because when being hunted by a predator, it is surely a bad idea to take a long time deciding what to do.

What usually triggers Doubt-avoidance tendency is some combination of:

(1) puzzlement
and (2) stress

5. Inconsistency-Avoidance Tendency

The brain of man conserves programming space by being reluctant to change.

Inconsistency-Avoidance Tendency is the root behind the power of habits. Chains of habit were too light to be felt before they became too strong to be broken.

The rare life that is rarely lived is a result of plenty of good habits maintained, and many bad habits avoided or cured. Remember: An ounce of prevention is worth a pound of cure. Meaning that Inconsistency-Avoidance Tendency makes it much easier to prevent a habit than to change it.

The human mind works a lot like the human egg. When one sperm gets into a human egg, there is an automatic shut-off device that bars any other sperm from getting in.

And so, people tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence they are wrong.

One of the most successful users of an antidote to first conclusion bias and inconsistency-avoidance tendency was Charles Darwin. He trained himself to intensively consider any evidence tending to disconfirm his hypothesis, more if the thought his hypothesis was a particularly good one.

Inconsistency-Avoidance Tendency can be a good thing, in that people act consistently with their public commitments and are loyal to their roles in life.

A really good way to exploit this tendency is to maneuver someone important who's approval you want into doing some unimportant favor, like lending a book to you. Thereafter, the man will admire and trust you more because a non-admired and non-trusted You would be inconsistent with the appraisal implicit in lending you the book.

6. Curiosity Tendency

There is a lot of innate curiosity in mammals, most strongly in us humans. Curiosity, enhanced by education, helps a man prevent or reduce bad consequences arising from other psychological tendencies.

7. Kantian Fairness Tendency

Kantian Fairness Tendency is the root of a lot of reciprocal courtesy, often warranting decisions where there is no clear reward, besides the fact that if the roles were reversed, we would expect such kindness from them.

8. Envy/Jealousy Tendency

A member of a species designed through evolutionary process to want often-scarce food is going to be driven strongly toward getting food when it sees it. And this is going to occur often and tend to create some conflict when the food is seen in possession of another member of the same species.

Envy and jealousy are extremely common in myth, religion, and literature, where in account after account, it triggers hatred and injury.

Warren often says, "it is not greed that drives the world, but envy"

9. Reciprocation Tendency

Humans have an automatic tendency to reciprocate both favors and disfavors.

Reciprocation tendency can be compounded with the superpower of incentives, and the Inconsistency-Avoidance Tendency to:

(1) help cause the fulfillment of promises made as part of a bargain, including loyalty promises
(2) helping cause correct behavior expected from persons doing their professional work.

This is exploited quite often, for example when the car salesman graciously steers you into a comfortable place to sit and gives you a cup of warm coffee, you are very likely to be tricked, by this small courtesy alone, into parting with an extra five hundred dollars.

This loss is exponentially increased when someone is buying for you, because they are not spending their own money.

As a result, being an employer, you should try to oppose reciprocity-favor tendencies of your employees that are engaged in purchasing. The simples antidote works best: Sam Walton agreed with the idea of absolute prohibition. He would not let his purchasing agents accept so much as a hot dog from a vendor trying to sell to his business.

Another powerful exploitation is making a small concession (see notes on Cialdini's "Influence" for more details). By making a small concession, you invoke the subconscious reciprocation of that concession.

10. Influence-from-Mere-Association Tendency

Consumers often associate higher price with better quality, especially for luxury goods, so sometimes it is a better idea to raise your price to change its positioning in consumer eyes.

Advertisers know about the price of mere association. Coke ads picture life as happier than reality, so this is taken into consideration in the type of publications they advertise in.

You have to be careful what you form an association with. For example, if by luck you form an association between the casino and winning because of one single lucky bet, you may bet more and more even though you are losing because the casino is still correlated to winning in your mind.

The proper antidotes to being made such a patsy by past success are:

(1) To carefully examine each past success, looking for accidental, non-causative factors associated with such success that will tend to mislead as one appraises odds implicit in a proposed new undertaking.
(2) To look for dangerous aspects of the new undertaking that were not present when past success occurred.

Another form of mere association tendency is in news. Being the carrier of unwelcome news will unconsciously reflect poorly on yourself.

11. Simple, Pain-Avoiding Psychological Denial

The reality is sometimes too painful to bear, so one distorts the facts until they become bearable.

12. Excessive Self-Regard Tendency

Man mostly mis-appraises himself on the high side, like the 90% of drivers that judge themselves to be above average.

Another example of this is in the endowment effect which states that all of man's decisions are suddenly regarded by him as better than would have been the case just before he made them.

Man's excess of self-regard also makes him strongly prefer people like himself.

The "Tolstoy Effect" is another repercussion of self-regard, which states that man makes excuses for his fixable poor performance instead of fixing it.

The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your possessions and knowledge.

13. Overoptimism Tendency

What a man wishes, he will also believe. This tendency connects to simple, pain-avoiding psychological denial in creating poor judgement.

14. Deprival-Superreaction Tendency

The quantity of a man's pleasure from a ten-dollar gain does not match the quantity of his displeasure at a ten-dollar loss. The loss hurts more than the gain makes you happy.

15. Social-Proof Tendency

The otherwise complex behavior of man is much simplified when he automatically thinks and does what he observed to be thought and done around him. Such followership usually works out fine and for the better.

Social-proof is a crutch that is most often relied upon when the user is in a state of puzzlement or stress

Because both bad and good behavior are made contagious by Social-Proof Tendency, it is important in human societies to (1) stop any bad behavior before it spreads and (2) foster and reward all good behavior.

In social proof, it is not only action by others that misleads, but also their inaction. In the presence of doubt, inaction by others becomes social proof in its own way that inaction is the right course of action.

Social Proof Tendency often interacts in a perverse way with Envy/Jealousy and Deprival-Superreaction tendency.

16. Contrast-Misreaction Tendency

Because the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. As perception goes, so does cognition: the result is contrast-misreaction tendency.

A common (and reprehensible) form of sales occurs in the offices of some real estate brokers. A buyer from outside the city, perhaps needing to shift his family there, visits the office with little time available. The salesman deliberately shows the customer 3 awful houses at ridiculously high prices. Then he shows a merely bad house at a price only moderately too high. And, boom, the broker often makes an easy sale.

Contrast-Misreaction tendency is routinely used to cause disadvantage for customers buying merchandise/services. To make an ordinary price seem low, the vendor will very frequently create a highly artificial price that is much higher than the price originally sought, then advertise his standard price as a big reduction from is phony price.

17. Stress-Influence Tendency

Everyone recognizes that sudden stress, for instance from a threat, will cause a rush of adrenaline in the human body, prompting faster and more extreme reaction.

Stress makes social proof tendency (and most others) more powerful and more readily relied upon.

18. Availability-Misweighting Tendency

Man's imperfect, limited capacity brain easily drifts into working with what's easily available to it. And so the mind overweighs what is easily available and thus displays Availability-Misweighting Tendency.

The main antidote often involves procedures, like the use of checklists

Also, another antidote is to behave like Darwin, and overly emphasize factors that don't produce reams if easily available numbers

The special strength of extra-vivid images in influencing the mind can be constructively used to:

(1) persuade someone else to reach a correct conclusion
(2) or as a device for improving one's own memory by attaching vivid images to items one doesn't want to forget.

19. Use-It-or-Lose-It Tendency

All skills attenuate with disuse.

The best antidote to this is to routinely practice all rarely used skills that you can't afford to lose.

If a man reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency. His learning capacity will also shrink as he creates gaps in his latticework of theory which he needs as a framework for understanding new experience.

20. Drug-Misinfluence Tendency

Don't do drugs.

21. Senescence-Misinfluence Tendency

With advanced age, there comes a natural cognitive decay.

22. Authority-Misinfluence Tendency

Living in dominance hierarchies as he does, like his fellow ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading.

23. Twaddle Tendency

Man, as a social animal who has the gift of language, is born to prattle and pour out twaddle that does much damage when serious work is being attempted. Some people produce copious amounts of twaddle and others very little.

"Keep the people who don't matter from interfering with the work of the people that do"

24. Reason-Respecting Tendency

There is in man, particularly one in an advanced culture, a natural love of accurate cognition and a joy in its exercise.

This tendency has an obvious implication. It makes man especially prone to learn well when a would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired belief ex cathedra with no reasons given. So it follows that when giving orders, if you want them followed, it is wise to use "because" and communicate the reasons to the recipient of the order.

25. Lollapalooza Tendency--The Tendency to Get Extreme Consequences from Confluences of Psychological Tendencies Acting in Favor of a Particular Outcome