| Why do people make bad decisions? We’ll explore cognitive dissonance, Charlie Munger cognitive biases, the psychology of human misjudgment, and other factors that impact your decision making. For each decision making flaw, I’ll give you a prescription for avoiding making that error in the future.
Books Mentioned: POOR CHARLIE’S ALMANAC by Peter Kaufman SEEKING WISDOM by Peter Bevelin MISTAKES WERE MADE BUT NOT BY ME by Eliot Aronson and Carol Tavris THE HAPPINESS HYPOTHESIS by Jonathan Haidt (Awesome book) How Fascinating! Over the course of our evolution, we developed certain blind spots that cause us to misperceive reality. The problem is it’s hard to fix these errors in your thinking, because you usually don’t know you’re doing them! Charlie Munger is the source of most of this material. For those of you who don’t know, Charlie Munger is a famous investor who is Warren Buffett’s business partner at Berkshire Hathaway. Long story short, Charlie is a basically a genius. And over the course of his career he chronicled all the decision making fallacies he noticed people commonly make that led to bad outcomes in business and in life. In Poor Charlie’s Almanac, he wrote a piece explaining 25 common ways people think incorrectly. In this video, I share 3 of my favorite biases with you. BIAS #1: Influence from Mere Association BIAS #2: Overconfidence BIAS #3: Cognitive Dissonance Leading to Justifications BONUS BIAS: Lollapalooza Effect So what is the driving force behind these cognitive biases? We have 2 systems in our brains, the rational system and the emotional system. In Jonathan Haidt’s book The Happiness Hypothesis, he compares the human mind to a rider on top of an elephant. The rider represents the rational system and the elephant represents the emotional system. The rider has some influence in controlling the elephant, but at the end of the day the elephant is still going to do whatever it wants. It’s easy to assume our minds ARE us and that the thoughts we have a generally logical or else we wouldn’t be thinking them in the first place! I would like you to consider that isn’t the case. Your emotions and impulses have a massive influence on your behavior even though it may seem to you like you are being rational. HOMEWORK 1. For each of these biases, see if you can come up with an example of when you’ve seen other people fall for these biases. AFFILIATE DISCLOSURE: Some of the links on this webpage are affiliate links, meaning, at no additional cost to you, we may earn a commission if you click through and make a purchase. However, this does not impact our choice of recommendations. |
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