A few notes and reminders inspired by Charlie Munger.
Law of the instrument (hammer syndrome)
To a man with a hammer, everything looks like a nail.
Psychological denial
When reality is too painful to bear, you distort it until it’s bearable. That’s a coping mechanism.
Confirmation bias
People tend to seek information that confirms their existing beliefs.
Delayed gratification
Carrots first → ice cream later.
Reciprocity principle
Rule on giving before taking.
We humans tend to return good deeds and pay back what we received from others.
See one, do one, teach one
A traditional format for acquiring medical skills, based on a 3-step process: visualize, perform, regurgitate.
— McGraw-Hill Concise Dictionary of Modern Medicine (2002)
It’s a powerful learning loop.
Asymmetry of information
An economic concept where one party has more or better information than the other. It creates an imbalance of power in transactions.
Agency cost
An economic concept of agents acting on behalf of a principal.
Cost arises when the principal cannot ensure that agents act in the principal’s best interests. The agent cannot be fully trusted because of asymmetry of information.
Principal–agent problem
Commitment & consistency
Hard to change your mind once emotionally committed to an idea.
Related tendencies (rough notes):
- Cognitive dissonance (echo chambers)
- Pavlovian association / past correlation
- Reciprocation tendency (ask for a lot and then back off to a lower offer)
- Over-influence of social proof
- Contrast (“grass is greener”)
- Over-influence by authority
- Deprival super-reaction syndrome (sunk cost fallacy)
- Envy
- Chemical dependency (addictions)
- Mis-gambling compulsion (“I chose it so the odds must be better”)
- Liking distortion (over-influenced by someone we like — including ourselves)
- Disliking distortion (under-influenced by someone we dislike)
- Humans are non-mathematical (and often too lazy to learn)
- Fear of scarcity
- Sympathy
- Over-influence by extra evidence
- Mental confusion from memorizing information without learning to use it
- Stress-induced mental changes (temporary/permanent)
- Skill atrophy through disuse
- “Say something” syndrome (talking without first principles)
Questions
- What happens when these standard tendencies combine?
- Is this list topological (i.e., overlapping / combinations)?
- Are these tendencies generally good or bad?
- What special knowledge problems lie buried in the thought system indicated by the list?
- How should the best parts of psychology and economics interrelate in an enlightened economist’s mind?
Extra
- It’s important not to put your brain in chains too young by what you shout out publicly (e.g., by joining echo chambers).