Takeaways & Quotes
- This book is about searching for wisdom
- It focuses on how our thoughts are influenced, why we make misjudgements and tools to improve our thinking
- The best way to learn what, how, and why things work is to learn from others
Part 1 – What influences our thinking
- Our anatomy, physiology and biochemistry are the fundamental bases for our behaviour. How these parts function set the limits for our behaviour
- What we feel and thinking depends on neural connections which are shaped by life experiences
- Our brain operates by the selection of pattern recognition not principles of logic
- Categorising ideas and objects helps us to recognise, differentiate and understand, making it easier to identify and make predictions based on similarities in patterns. That’s why we always look for patterns and casual relationships among objects, actions and situations.
- Biology influences our culture and vice versa eg we’re not born with a language but we can learn a language – the language we speak is a product of our culture
- Biological + cultural history = our nature
- Genetic and cultural evolution equipped us with behavioural tendencies (a value system based on pain and pleasure) that help us interact with our environment. Sometimes they lead us astray and cause us to make misjudgements
I always look at IQ and talent as representing the horsepower of the motor, but then in terms of the output, the efficiency with which the motor works, depends on rationality. […] So why do smart people do things that interfere with getting the output they’re entitled to? It gets into the habits, character and temperament, and it really gets into behaving in a rational manner.
Warren Buffet
Part 2 – The Psychology of Misjudgement
Bevelin presents 28 reasons why humans misjudge things
- Reward & Punishment
• Praise is more effective in changing behaviour than punishment. It’s better to encourage what is right than to criticise what is wrong
• Don’t let money be the only motivation. - Self-Interest & Incentives
• We’re biased by our incentives as are others
• Don’t automatically trust people who have something at stake from your decision. Ask: What are the interests? who benefits?
• It’s better to convince people by asking questions that illuminate consequences. This causes them to think for themselves and makes it more likely that they discover what’s in their best interest. - Self-Serving Tendencies & Optimism
• Optimism is good but when it comes to important decisions, realism is better
• The more we know or think we know about a subject, the less willing we are to use other ideas. Instead, we tend to solve a problem in a way that agrees with our area of expertise.
• Recognise your limit. How well do you know what you don’t know? Don’t let your ego determine what you should do.
• Focus on what can go wrong and the consequences. Ask: How can I be wrong? Who can tell me if i’m wrong? - Consistency
• Once we’ve committed, we want to remain consistent. We want to feel that we’ve made the right decision. And the more we have invested in our behaviour, the harder it is to change
• The more time, money, effort or pain we invest, the more we feel the need to continue, and the more highly we value something – whether or not it is right.
• We look for evidence that confirms our ideas, beliefs, and actions. Devising reasons why we might be wrong doesn’t come easily.
• Why do we do things (we don’t want to do) merely because we’ve paid for them? Usually because we don’t want to waste the money. Isn’t it better to say the money spent is the cost of doing what you truly want to do? The consequences are the same – money has already been spent. The choice is between having a good time or a lousy time.
• A decision must be active, nothing wrong with changing a plan when the situation has changed. You can’t avoid wrong decisions. But if you recognise them promptly and do something about them, you can frequently turn the lemon into lemonade
• When you’re asked to perform a future action but are uncertain. ask : Would I do this If I had to do it tomorrow?
• Decisions should be based on where you want to be. Not where you’ve been. Base decisions on the present situation and future consequences. What happened in the past may be a guide for estimating how likely something is to happen in the future. - Do-Nothing Syndrome
• We resist change and prefer effort minimisation. We favour routine behaviour over innovative behaviour. We refer to the default option → Read Nudge
• Deciding to do nothing is also a decision. And the cost of doing nothing could be greater than the cost of taking an action
• Sometimes we don’t act when we know we should. Once we know what. todo, we should do it - Vividness
• The more dramatic, salient, personal, entertaining, or emotional some info, event or experience is, the more influenced we are
• We’re easily influenced when we’re told stories because we relate to stories better than to logic or fact. We love to be entertained
• Accurate info is better than dramatic info. Back up vivid stories with facts & numbers - Authority
• Evaluate the truth of a statement based on its underlying facts, without regard to the authority’s personal qualities or social status
• Anyone can call themselves an expert. Separate between real & false experts
• An authority may have an interest in persuading you to belive something that is in their interest. Always consider reliability, credibility, sensibility and bias - Say-Something Syndrome
• Why do we always need answer? Isn’t it better to say “I don’t know?”
• Socrates said that awareness of ignorance is the beginning of wisdom
A spoonful of honey will catch more flies than a gallon of vinegar
Benjamin Franklin
All commissioned salesman have a tendency to serve the transaction instead of the truth
Charlie Munger says on incentives.
Predicting rain doesn’t count; building arks does.
Warren Buffett’s Noah Principle
When you get two or three of these psychological principles operating together, then you really get irrationality on a tremendous scale.
Charlie Munger
Part 3 – The Physics and Math of Misjudgement
Reasons for misjudgement and mistakes can be reduced by considering some basic principles from physics and math.
- Systems Thinking
• One way to reduce unintended consequences is to stop focusing on isolated factors and instead consider how our actions affect the whole system
• When thinking through consequences, consider what other people are likely to do (their reactions) → game theory - Scale & Limits
• Changes in size or time influence form, function and behaviour
• A small change may not effect on a system until a critical breakpoint / threshold is reached eg minimum effective dose
• Constraint : Optimisation of one variable may cause the whole system to work less efficiently because the performance of most systems is bounded by its weakest link - Number
• Use basic math to count, quantify, and understand relationships - Probabilities & Possible outcomes
Part 4 – Guidelines to better thinking
There’re 12 tools discussed in the book. They provide a foundation for rational thinking. Ideas that help us when achieving goals, explaining “why”, preventing and reducing mistakes, solving problems, and evaluating statements.
➊ Models of Reality
The world is multidisciplinary. No single discipline has all the answers, we need to understand and use the big ideas from all the important disciplines – math, physics, chemistry, engineering, biology, physiology and rank and use them in order of their reliability.
The models that come from hard science and engineering are the most reliable models on this Earth.
Charlie Munger
One way of focusing us to learn models to better deal with reality is to search for explanations. What happens and why does it happen?
➋ Meaning
Words, definitions, propositions, statements, or goals don’t tell us anything. We need to understand what they mean. Understanding “meaning” requires that we observe and ask basic questions (p200) such as …
• Meaning of words
• Meaning of an event
• Causes
• Implications
• Purpose
• Reason
• Usefulness
When describing something, tell it as it’s and use words that people understand, and in terms of ideas with which they’re familiar.
➌ Simplification
- Break down a problem into its components but look at the problem holistically
- More info doesn’t equal more knowledge or better decisions
- Turn off the noise. Ask: Why am I doing this? What matters? What’s important for what I want to achieve? Will more info affect my decision? Don’t collect data randomly
- Focus leads to understanding and efficiency
- Always think with a purpose in mind
- What’s knowable and important?
- Ask the right questions, look at the right place and ask the right person. Start with basic questions like : What does it mean? What’s the simplest example? What’s the number one question? How can I tell if the answer is right? Can I come up with an example that makes it clear what the problem is?
There’re 2 questions you ask yourself as you look at the decision you’ll make. (a) Is it knowable? (b) Is it important?
Charlie Munger’s success in life and business
If it’s not knowable, as you know there’re all kinds of things that are important but not knowable, we forget about those. And if it’s unimportant, whether it’s knowable or not, it won’t make any difference. We don’t care.
➍ Quantification
Most aspects of our lives depend on our ability to quantify and understand patterns and relationships, proportions, or magnitudes. Math helps us develop consequences, and evaluate when things make sense.
When we translate something into numbers we can make comparisons. For things that can’t be measured exactly, estimating a range is the next best alternative.
➎ Evidence
Evidence helps us prove what is likely to happen or likely to be true or false. Evidence comes from facts, observations, experiences, comparisons, and experiments.
Past Evidence
The following questions help us decide if past evidence is representative of the future
- Observation : Will past/present behaviour continue? How long can it continue?
- Explanation : Why did it happen in the past or why does it happen now? How did it happen? We must understand the reasons why a past outcome occurred. What are the key factors? This demands that we understand the equation – the key variables involved and their relationships. Start with a hypothesis. Compare the implied consequences of our explanation with appropriate evidence – for and against.
- Predictability : How predictive (representative) is the past/present evidence for what is likely to happen in the future? Are the conditions now and in the future likely to change? Make sure that the evidence isn’t random. What worked in the past could have been the result of chance.
- Continuation & Change : What is required to make the past/present record continue or to achieve the goal (look at the equation again)? What must happen? What must not happen? What forces can change it or cause what we don’t want? Likely? Antidotes to what we don’t want to happen?
- Certainty & Consequences : How certain am I? What single event am I betting on that that must happen or not happen? What are the consequences of being wrong?
Falsify & Disprove
Instead of verifying a statement, it’s sometimes better to prove it false. A single piece of evidence in favour of a statement does not prove its truth – it only supports it. But a single piece of evidence against it will show that it is false → All swans are white
Engage in self-criticism. Question your assumptions. Explain the opposite of your beliefs. Ask: Assume I’m wrong, how will I know? Why may an opposite theory be correct? Assuming my answer is correct, what would cause me to change my mind? Then, look for that evidence.
➏ Attitude
Life is long if we know how to use it.
You live as if you were destined to live forever, no thought of your frailty ever enters your head, of how much time has already gone by you take no heed.
Seneca, On the Shortness of Life
It reminds me of Peter Thiel’s worldview : Live each day as if you will live forever, treat the people around you as if they too will be around forever. [Refer to P.335 The Contrarian by Max Chafkin]
We only have one life so we should try to create a life we enjoy.
If you are in a job that you are not enthusiastic about, find something else. You’re not doing yourself any favour, and you’re not doing your employer any favour and you’re going to make a change anyway at some point. We’re here on earth only one time, so you ought to be doing something that you enjoy as you go along, and can be enthusiastic about.
You can either do what you love or love what you do. I don’t see there’s any other choice.
Comedian George Burns
Do what turns you on. Do something that if you had all the money in the world, you’d still be doing it. You’ve got to have a reason to jump out of bed in the morning… Don’t look for the money. Look for something you love, and if you’re good, the money will come. “
Warren Buffet says on the value of enthusiasm
Part of avoiding misjudgements and improving our lives is having the right attitude toward life. There is no one-size-fits-all strategy. We each must figure out our style. But some guidelines apply to us all. We should act in a way that agrees with our nature, advantages and limitations and we should establish (and follow) some values.
How can we do what is important if we don’t have any values? If we don’t stand for something, we fall for anything.
To know that we know what we know and that we do not know, what we do not know; that is true knowledge.
Confucius
You have to stick within what I call your circle of competence. You have to know what you understand and what you don’t understand. It’s not terribly important how big the circle is. But it’s terribly important that you know where the perimeter is
Warren Buffet
Ask: What is my nature? What motivates me? What is my tolerance for pain and risk? What has given me happiness and unhappiness in the past? What things and people am I comfortable with? What are my talents and skills? Do I know the difference between what I want and what I’m good at? Where do I have an edge over others? What are my limitations?
Be Honest. Act honourably. Act with integrity and individuality.
The content of your character is your choice. Day by day, what you choose, what you think, and what you do is who you become. Your integrity is your destiny.. .it is the light that guides your way.
Heraclitus
Other Tools
• Rules and Filters
• Goals
• Alternatives
• Consequences
• Backward Thinking
• Risk
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