The Psychology of Human Misjudgment


Several times in a day we make decisions, some life changing and others un-affecting.

All these decisions that we make are not always objective but are to some degree diluted by Psychology aspects.

Charlie Munger the Vice chairman of Berkshire Hathaway and best known as Business magnate Warren Buffett’s ‘partner’ lists these factors to influence The Psychology of Human Misjudgment

Psychological denial: Not accepting something that has happened.

– Agency cost: Blindly trusting an agent (Doctor, Lawyer, Sales reps) on their words learn basics of agents trade

– Consistency & commitment tendency: Shutting to others idea after you have made a decision

– Pavlonian association: Association of self with good things, subconsciously. For example Accenture snap their ties with a leading sports start after his personal troubles surfaced in media reports. One tendency is costiler is better

– Reciprocation tendency: Tendency to reciprocate and do things when the expectation is lowered. Example is asking a kid to run for 10km and when kid denies to do so you lower the expectation to say 7km while the kid on normal situation would have only run 5km

– Social proof: You look at others action to decide on your action. When everyone drinks green tea you also choose to do so and believe that it is good because others are doing it

– Contrast-caused distortion: Over-influenced by contrast.

– Over-influence by authority: When you do not challenge the authority even though they are wrong and it will affect you

– Deprival super-reaction syndrome: When you push back a change because you feel you lose something that you have today

– Envy Jealousy: a feeling of discontented or resentful longing aroused by someone else’s possessions, qualities, or luck.

– Chemical dependency: Addiction to chemicals and making decision under the influence of addicted chemicals

– Misgambling compulsion: Staged ‘just-miss’ situations that cause you to play again in order that you will succeed this time

– Liking distortion: Not liking someone who does who doesn’t believe you

– Stress induced mental changes: Reversal of tendencies after stress

– Other normal limitations of sensation, memory, cognition & knowledge