“The Psychology of Human Misjudgment”

Charlie Munger, Warren Buffett’s partner and vice chairman of Berkshire Hathaway, stresses the importance of having a broad theoretical toolbox – not to be a good academic, but to have a good, pragmatic grip on reality. He regularly explains to students which mental models have proven most useful to help him understand markets and human behaviour.

Reward- and punishment-superresponse tendency Liking / loving tendency Disliking / hating tendency Doubt-avoidance tendency Inconsistency-avoidance tendency Curiosity tendency Kantian fairness tendency Envy / jealousy tendency Reciprocation tendency Influence-from-mere-association tendency Simple, pain-avoiding psychological denial Excessive self-r

To understand how businesses work, you must have a firm understanding of how people tend to think and behave—how humans make decisions, act on those decisions, and communicate with others.

confirmation bias and overconfidence just like the rest of us. Our brains naturally project outcomes that conform to the way we think the world works. To avoid those pitfalls, you need to trick your mind into entertaining alternative narratives, plot lines that might undermine your assumptions, not confirm them.

systematic biases in human decision-making (Kahneman, 2011; Kahneman et al., 1982).