Introduction

The book Poor Charlie’s Almanack is a collection of speeches from the late Charlie Munger. One section of the book describes behaviours (“tendencies”) I have often observed on software projects.

The description was accurate and I decided to re-read the whole chapter and take notes.

Here I summarize notes from Chalie Munger’s speech and also add few of my own comments.

1. Reward and Punishment Super Response Tendency

• people respond to incentives and disincentives
• rewards and punishments have high impact on work environment motivation and behaviour
• Ben Franklin said “appeal to interest, not to reason”
• animals and people “repeat behaviour that works” → prompt rewards are better than delayed rewards in changing behaviour (see studies on pigeons by B.F. Skinner)
• people are driven by incentives consciously and subconsciously → it’s easy to drift into undesirable behaviour and rationalize it afterward (why she/he did it or had to do it)
• in business environment watch out for conflicts of interest, examples:
  • vendors that artificially prolong a profitable engagement
  • consultants offering a “solution” to a complex problem
  • financial advisors selling commission-based products
    
  • …
• even good people can behave immorally with bad incentives (slow drift, unconscious, rationalizing)
• “agency cost” → if someone (agent) acts on your behalf, but his/her actions are not in your best interest (cost)
  • there will often be some agency cost in multi-party systems (“some grain is always lost to rats”)
  • labour agency costs (employees vs. management) can be reduced by good incentives (financial compensation, Daniel Pink’s Autonomy, Mastery (career development), Purpose …)
• people can “game” the system → don’t reward for things that can be easily faked

2. Liking/Loving Tendency

• people like being liked or loved
• people can ignore faults of loved/liked ones and more easily comply with their wishes
• tendency to favor things (people, products, …) associated with object of their liking/loving
• can lead to an extreme like self-destruction in help of what is loved

3. Disliking/Hating Tendency

• people easily ignore virtues/benefits of what is disliked/hated
• tendency to dislike/hate things (people, products, …) associated with object of their disliking/hating

4. Doubt-Avoidance Tendency

• it’s not comfortable to have doubt
• there is a natural tendency to quickly remove doubt
• triggered by combination of puzzlement and stress

5. Inconsistency-Avoidance Tendency

• people are naturally reluctant to change
• when bad habits form over long time it’s difficult to remove them → avoid bad habits from the get-go
• internal mental model is kept consistent → facts that are embedded deeper in the mental model are more difficult to change because a lot of other facts are connected to it (change in more “fundamental” facts would have a snowball effect of other changes in the mental model)
  • it’s possible to get “imprisoned in poor conclusions”
  • build good initial conclusions, because they are hard to change (i.e. inconsistency between new evidence and conclusion tends to be avoided)
  • people need to re-examine fixed conclusions and attitudes based on new evidence
• avoid confirmation bias by searching for evidence disproving a given conclusion or attitude
• people who are forced (willingly or unwillingly) to do something repeatedly and over longer time will internalize it and adjust their mental model (i.e. remove the inconsistency) → e.g. teachers teaching something over and over

6. Curiosity Tendency

• people are curious

7. Kantian Fairness Tendency

• people try to share fairly when something good or bad happens
• people get upset if sharing is expected but does not occur
  • “why is the man upset when I didn’t do anything for him?”

8. Envy/Jealousy Tendency

• can trigger hatred and injury
• people want what other people have
• uneven or unfair employee compensation can be a problem
• old religions often warn of envy

9. Reciprocation Tendency

• people reciprocate favors and disfavors
• reciprocity enhances group cooperation
• best antidote to disfavor reciprocity is deferring reaction
• reciprocity is present in all good relationships
• reciprocating favors partially works on subconscious level →
  • misused by salesmen giving customers small favors in order to win them over
  • vendors might try to give favors to procurement to trigger the tendency
• obtaining help from god in return for good behaviour is a manifestation of this tendency

10. Influence from mere association Tendency

• expensive items are perceived as higher-status
• products like cars and shavers associated with manliness
• we perceive things that are associated with objects that we like/love as good
• we perceive things that are associated with objects that we dislike/hate as bad
  • example: employees/companies attribute negative characteristics to their competitors
• people who give negative or unwelcome news are perceived negatively (“don’t kill the messenger”)
  • if “killing messengers carrying bad news” persists no negative news will be reported
  • encourage people to bring bad new promptly
• association tendency can lead to stereotyping of people based on age, sex or appearance

11. Simple pain-avoiding psychological denial

• reality can be too painful so some people distort facts to make reality more bearable (e.g. death of child)
• drug addicts can be in denial of their current life circumstances

12. Excessive self-regard Tendency

• most drivers rate themselves as above average
• mis-appraisals also apply to possessions
  • people think more highly of things they own
  • same goes for their children → parents think their children are above average
  • in psychology, it’s called the “endowment effect” → people place higher value on things they own (compared to the same things if they wouldn’t own them)
• people prefer people similar to them
  • people are more willing to help people similar to themselves → this was proven by psychology experiments
  • during hiring process this can be problematic as people will prefer candidates that are like them
    • bad work environments will hire more bad people thus making the problem worse
• people spend more on lotteries where they can decide the “winning numbers” (compared to a pre-filled lottery tickets) although the odds of winning are almost the same
• people believe more in things they already invested in
• employees criticize bad traits in others that they themselves have
• employees can over-value their own skills
• during interviews people are swayed more by their own impressions of the candidate (especially during face-to-face) than reality would warrant
  • watch out for of marvelous presenters in the workplace
• people sometimes make repeated non-relevant excuses for the fixable poor performance (instead of fixing the behaviour)
  • Charlie Munger says “fixable but unfixed bad performance is bad character”
  • in workplace antidotes are:
    1. meritocratic culture
    2. building up of morale
    3. removing the worst offenders
• try to be more objective when thinking about yourself, your family and your property

13. Overoptimism Tendency

• “what a man wishes that also will he believe”
• antidote:
  • learn probability theory
  • use data

14. Deprival super Reaction Tendency

• losses hurt more than gains (so-called “loss aversion” in behavioral economy)
• it’s very upsetting when someone has “almost something” and then doesn’t get it
  • manifested also in gambling → addictively engineered “near misses” (2x Lemon 1x cherry) slot machines, loot boxes in video games
  • also manifested in auctions and public biddings → people bid to an extreme price, because they feel deprived of something they “almost owned”
• tendency leads to irrationally strong reaction to small losses or even threats of a losses
• employees can have a strong reaction when they get something (even a trivial thing) and afterward they stop getting it or loose it
  • this also applies to things that employees think they will get and later turns out don’t get
• excessive labor demands from employees can lead to demise of the business as a whole
• corporations are sometimes “throwing good money after bad” → trying to rescue lost causes

15. Social Proof Tendency

• people have a tendency to think and act as people around them
• tendency is stronger during stress or puzzlement
• stress can be increased by fatigue (people are then more susceptible to social proof tendency)
• it’s important to foster good behaviour in organizations
• it’s difficult to resist social contagion of bad behaviour
• bystander effect is a variant when people’s inactivity is sustained by inactivity of others (this can happen in management meetings as well)
• antidote: learn to ignore bad examples

16. Contrast misreaction Tendency

• unable to evaluate things objectively when presented in contrast
  • buying something overpriced because of another recent very expensive purchase (contrast to expensive purchase makes overpriced smaller purchase feel ok)
  • bad choice of partner because previous partner was even worse
  • buying real-estate because real-estate broker presents extremely overpriced choices before presenting a merely overpriced choice
  • judging a project “not so bad” because other projects are even worse

17. Stress Influence Tendency

• prolonged stress can alter behaviour
• it’s hard to get to a before-stress state
• everyone is susceptible

18. Availability mis-weighing Tendency

• brain focuses on what is easily available
• selective remembering is a risk to objectivity
• the mind overweights what is easily available
• antidote:
  • checklists
  • analyze dis-confirming evidence
• vivid memories and experiences shadow objective recollection

19. Use-it-or-loose-it Tendency

• skills need to be periodically refreshed
• very high skill needs to be maintained by daily practice

20. Drug-misinfluece Tendency

• don’t do drugs or alcohol

21. Authority-misinfluence Tendency

• people follow leaders even if leaders are bad
• people organize in dominance hierarchies
• see Milgram experiment (test in obeying authority)

22. Twaddle Tendency

• some people produce a lot of twaddle
• keep twaddling people out of serious work

23. Reason respecting Tendency

• it’s better to explain “why?”
  • people sometimes accept wrong or illogical reasons (see Ellen Langer photocopier experiment about cutting in line)
  • make sure reasons are correct

Conclusion

Charlie Munger says these tendencies are just one way to slice and dice human behaviour. There could be better and more efficient ways of categorizing them, however I find the list very useful and intuitive.