The Psychology of Human Misjudgement

Our lives are primarily shaped by the decisions we make.

We make millions of decisions throughout the course of our lives.

Some needless to say are less important than others.

What to wear on any given day is a decision. What to eat is another.

And making these types decisions takes time.

The more of these less important decisions we streamline the better.

It saves time.

As a side note, there’s a reason why Steve Jobs wore the same outfits almost everyday and on every occasion.

And here’s the thing with making decision.

Since our time is limited we need “shortcuts” to make some of these decisions. We simply do not have the time to take into account every little detail and take the “perfect” course of action.

So our brain develops all kinds of “shortcuts” or cognitive biases in order to help us make a decision.

These cognitive biases take place at the subconscious level so most people are not really aware of them so they can be very misleading.

In 1995, Charlie Munger, the famous investment partner of Warren Buffett made a speech at Harvard about the psychology of human misjudgement. The speech can be found at this link. In this speech he identified 25 cognitive biases. They are as follows:

  1. Reward/Punishment Super-Response Tendency Bias
  2. Liking/Loving Bias
  3. Disliking/Hating Bias
  4. Doubt-avoidance Tendency
  5. Inconsistency-avoidance Tendency
  6. Curiosity Tendency
  7. Kantian Fairness Tendency
  8. Envy/Jealousy Tendency
  9. Reciprocation Tendency
  10. Influence from mere association Tendency
  11. Simple, Pain-Avoiding Psychological Denial
  12. Excessive Self-regard Tendency
  13. Over-Optimism Tendency
  14. Deprival Super-Reaction Tendency
  15. Social-Proof Tendency
  16. Contrast-Misreaction Tendency
  17. Stress-Influence Tendency
  18. Availability-Misweighing Tendency
  19. Use-It-or-Lose-It Tendency
  20. Drug-Misinfluence Tendency
  21. Senescence-Misinfluence Tendency
  22. Authority-Misinfluence Tendency
  23. Twaddle Tendency
  24. Reason-Respecting Tendency
  25. Lollapalooze Tendency