24 Psychology Models Charlie Munger Says You Must Know
“Of all the models that people ought to have in useful form and don’t, perhaps the most important lie in the area of psychology.” -Charlie Munger
👋 CMQ Investors,
Nearly everything Charlie Munger recommends has made me a better thinker.
Just this morning, I followed the advice below. It helped me cut through the noise and see a situation I’ve been dealing with more clearly.
Take all the main models from psychology and use them as a checklist in reviewing outcomes in complex systems. — Charlie Munger
In 1995, Charlie Munger synthesized the most important ideas from psychology in a speech he called The Psychology of Human Misjudgment.
Farnam Street calls the speech the “magnum opus on why we behave as we do.”
👉 I’ve enhanced the audio and added captions if you want to watch/listen below. I also included a concise list of the psychological principles from the talk. It’s the same checklist I used today.
The 24 Causes of Misjudgement
1. Reward and Punishment Super-Response Tendency
Incentives rule behavior. Always ask: What’s really motivating this person? Or me?
2. Liking/Loving and Disliking/Hating Tendency
We distort facts to stay loyal to people or things we like. We also dismiss truth about what we dislike.
3. Doubt-Avoidance Tendency
Uncertainty is uncomfortable. So we rush to resolve it, often too quickly.
4. Inconsistency-Avoidance Tendency
We resist changing our minds, even when the evidence demands it.
5. Curiosity Tendency
Curiosity drives learning.
6. Kantian Fairness Tendency
Our deep-rooted sense of fairness shapes choices more than we realize.
7. Envy/Jealousy Tendency
These emotions cloud judgment and drive poor financial decisions.
8. Reciprocation Tendency
Even small favors trigger a strong urge to return them.
9. Influence-from-Mere-Association Tendency
We make decisions based on surface associations, not substance.
10. Simple, Pain-Avoiding Psychological Denial
We deny unpleasant realities instead of facing them.
11. Excessive Self-Regard Tendency
Overconfidence leads to errors. Most people think they’re above average.
12. Overoptimism Tendency
Optimism can blind us to risk and downside.
13. Deprival-Superreaction Tendency
Loss feels worse than gain feels good.
14. Social-Proof Tendency
When unsure, we copy others.
15. Contrast-Misreaction Tendency
We get misled by relative comparisons instead of looking at absolute value.
16. Stress-Influence Tendency
Stress impairs decision-making, even for smart people.
17. Availability-Misweighing Tendency
What’s easiest to recall feels most important. It’s usually not.
18. Use-It-or-Lose-It Tendency
Unused knowledge and skills decay. Constant review matters.
19. Drug-Misinfluence Tendency
Substances distort thinking and magnify bias.
20. Senescence-Misinfluence Tendency
Cognitive decline changes how we weigh information and risk.
21. Authority-Misinfluence Tendency
We defer to authority even when it’s wrong.
22. Twaddle Tendency
We waste time on noise and ignore signal.
23. Reason-Respecting Tendency
We’re too easily persuaded by weak or false logic, just because it sounds like reasoning.
24. Lollapalooza Tendency
When multiple biases combine, their effects multiply.
🛠️ How to Use This
Use a checklist: Run every major decision through these filters. Ask: Which tendencies might be distorting my view?
Study mistakes: Look back at past investing errors. What psychological trap were you (or they) caught in?
Keep sharpening your edge: These biases don’t go away. But you can train yourself to spot them faster.
If this checklist was useful, let me know by tapping ❤️ below or sharing it with someone who’s serious about getting better.
👋 Was this your first time here? Read my most popular public posts on Substack.