Here’s the 10 most critical mental flaws that Munger warned his Harvard students:
1) Overreaction to loss:
You over-emphasize loss instead of gain.
Don’t miss a big opportunity, just to avoid a small loss.
2) Inconsistency-Avoidance:
When you believe something you identify with it.
Any information you see that clashes with your beliefs will appear twisted. See information for what it is.
3) Availability-Misweighing:
The simplest answers to complex situations go the most viral.
If others give you one response for why something happens, assume you’re missing information.
4) Twaddle Tendency:
People make things up as they go (to appear smarter than they are).
When someone gives you an explanation, assume some percent of it is made up.
5) Social-Proof Bias:
We tend to follow the crowd.
Just because an idea is popular doesn’t make it true.
6) Overoptimism Tendency:
We tend to have unrealistic optimism. This makes it hard for us to accurately judge risk.
Have a 3rd person judge your downside risk.
7) Reward and Punishment Superresponse:
We underestimate how much impact incentives have.
Before you work with others, understand how they’re incentivized.
8) Pain-Avoiding Psychological Denial:
We will skew reality when the truth is painful.
This protects our ego, but gives us poor information to make decisions.
9) Influence-from-Association:
When you associate an idea with something bad, you assume it’s bad.
Find useful lessons that others avoid.
10) Lollapalooza Tendency:
When multiple mental flaws work together you get extreme outcomes. Look out for multiple flaws when others explain their logic.
