Making Bad Decision, Why?

5 minute read

What if you were 99 years and 11 months old, and most of your life was spend to find out why people make terrible decision, so you can avoid it, and make money.

Charlie Munger spent his entire life studying why humans make terrible decisions. A billionaire investor, and served as vice chairman at Berkshire Hathaway since 1978.

He created a list with of the most power psychological tendencies in life.

(We will look at the most relevant 23 in short, so you might make better decisions, and more money)

This is a tribute to Charlie Munger that passed away on 29 November 2023,

RIP Charlie!

Powerful psychological tendencies (Biases)

1. Reward and Punishment

Our actions are influenced by rewards and punishments, whether we realize it or not. “Never, ever, think about something else when you should be thinking about the power of incentives.”

2. Liking/Loving

We tend to favor people and symbols we like, sometimes overlooking their mistakes and flaws.

3. Reciprocation

Culturally ingrained, but be cautious of people trying to buy you. But, If you give first, you will get same or even more back later.

4. Disliking/Hating

Hatred or disliking someone can lead us to distort facts. Try to think logically rather than emotionally.

5. Social-Proof

Question whether the crowd is right; don't blindly follow others in uncertain situations. But you will find it easier to get sucked in, if more people are doing it.

6. Use-It-or-Lose-It

Continuously use and apply skills and knowledge to prevent decline. Make more decisions and the muscle will get stronger.

7. Inconsistency-Avoidance

We prefer consistency, even if it means sticking to bad habits. Be aware of these patterns to expand your choices. The power of habits is strong!

8. Authority-Misinfluence

Question opinions based on logic, not just because they come from authoritative figures. “If the man in uniform said it, then it must be true”, don't fall for it.

9. Scarcity

We want what we can’t have…be aware of it and try to control the urge not to want it right now. The 2 marshmallows will taste better if you wait…

10. Reason-Respecting

Providing reasons, even if meaningless, can increase compliance with requests. The power in the word ‘BECAUSE’. This will make people take decisions just…. because.

11. Drug-Misinfluence

Avoid situations or substances that distort your perception of reality, if you need to make big decisions don’t be high!

12. Jealousy/Envy

These emotions can cloud judgment. So will many other negative emotions, however be aware of them and focus on logical thinking. Surround yourself with good people that will tell you when these emotions are creeping up in you.

13. Availability-Mis weighing

Seek different perspectives and statistical information; don't rely solely on easily recalled information. [Ask a friend or experts if you need to!]

14. Twaddle or Wasting time

Value your time; set limits on time-wasting activities. Because it will distract you from your goals.

15. Simple, Pain-Avoiding Psychological Denial

Face the truth to deal with problems before they escalate. Ask good friends and coaches to be honest with you, so you don’t avoid pain, but go through it.

16. Doubt/Avoidance

Stress can drive hasty decisions. Combat this by scheduling deliberate delays for more thoughtful choices. If in doubt, pull out.

17. Overoptimism

Balance optimism with pragmatism; consider potential challenges. Confidence is like a scalpel the doctor uses. It can cut to heal, and it can cut to kill. Optimism is great but arrogance is not.

18. Deprival-Super reaction

Reacting strongly to losses can cloud judgment. Stay focused on the next steps. Let bygones be bygones, and try not to do it again. We all make mistakes and it is OK. Don't linger on it.

19. Excessive Self-Regard

Humility is essential to avoid overestimating your abilities. “Get humble, get rich, stay humble, stay rich” Stefan Scheepers

20. Kantian Fairness

Stop expecting perfect fairness; adapt your behavior to the reality of life's ups and downs. Brian Tracey said something like “Life is all about problem, problem, crisis”. So we need to know life is not fair and prepare our self for the crisis times.

21. Senescence-Misinfluence 

Aging is inevitable, as we loose brain power we will make terrible decisions! Continual learning may slow mental decline.

22. Curiosity

Human curiosity drives innovation and progress. Embrace it for personal and societal growth. Just remember that Curiosity killed the cat.

23. Lollapalooza

When we combine two, three or even more biases, then we go all ‘coo coo’. This is when we are like a deer in a headlight, making terrible decisions. Be aware.

In closing

Look at yourself and think how many of these biases are in your life, and how many you can adapt or avoid.

Again this is something I remind myself of many times. and worth mentioning to you.

In the words of Charlie… “I like to think rasional, so tell me where I am going to die, and I won’t go there”

Thank you for reading and keep buying assets!

Stefan