(4 min. read)
The late Charlie Munger spoke heavily about being multidisciplinary in business, especially in psychology. In Poor Charlie’s Almanack, Munger’s book of wisdom, he discusses in detail many psychological principles that are essential to understand in the world of business.
Here is my abridged list of the most important of Charlie Munger’s points, condensed into 17 psychological tendencies that are essential to every leader’s arsenal.
1. Reward and Punishment Super-Response Tendency
People are persuaded only by their personal interests and not to reason. Imagine how quickly infrastructure construction would be completed if companies paid their workers when the project was completed as opposed to hourly.
2. Liking/Loving Tendency
People will 1) ignore faults and comply with the wishes of the object of their affection 2) favor things associated with the object of his affection 3) distort facts to facilitate love.
3. Disliking/Hating Tendency
People will 1) ignore virtues and actively repel the wishes of the object of their disaffection 2) dislike things associated with the object of their disaffection 3) distort facts to facilitate hatred.
4. Doubt Avoidance Tendency
Puzzlement and stress will cause a man to come to quick and dirty decisions to remove doubt.
5. Inconsistency Avoidance Tendency
Our brains conserve programming space by being reluctant to change and thus facilitate the formation of habits. We tend to maintain our conclusions, loyalties, and identities throughout life if there are no sacrifices made to change them. Remember: it’s much easier to prevent a habit than to change it.
6. Reciprocation Tendency
People don’t turn the other cheek very often. We tend to reciprocate what other people do to us, good or bad. Small concessions by us often increase the chances of getting favorable results.
7. Influence From Mere Association Tendency
The biggest miscalculations come from expecting future outcomes based on past ones. For example, we associate higher-priced items as being higher quality, because in the past we’ve more often than not seen this to be the case. Remember: always look for accidental, non-causative factors in past successes.
8. Excessive Self-Regard Tendency
People over-appraise things or other people that they are closely associated with.
9. Over-Optimism Tendency
“What a man wishes, that also he will believe.” Wishful thinking will cause you to believe in an outcome more than you would normally.
10. Deprival Super-Reaction Tendency
The quality of pleasure of a $100 gain does not match the quality of displeasure of a $100 loss. People tend to see what is near to us as a greater priority than what truly matters. We react with irrational intensity to small losses or threatened small losses. Gamblers go crazy when they have near-miss losses, and frantically keep playing to try to get back to even.
11. Social Proof Tendency
Monkey see, monkey do. People copy the actions of others in choosing how to behave in certain situations.
12. Contrast Misreaction Tendency
“A small leak will sink a great ship.” Our brains aren’t wired to see things as they are, they are wired to see things in contrast with the world around them. We sometimes miss big problems because they seem insignificant to something else happening in the moment.
13. Stress Influence Tendency
Stressful situations make social proof a more powerful influence.
14. Availability-Misweighing Tendency
Man’s limited-capacity brain easily drifts to what’s available to it in that situation. An idea or decision is not worth more just because it’s available to you.
15. Use-It-Or-Lose-It Tendency
A wise person engages in consistently practicing all of their useful but rarely used skills. It is amazing how quickly our brain forgets how to do certain things.
16. Authority-Misinfluence Tendency
Pay attention to the acts and asks of authority figures. Our brains are hardwired to follow hierarchies, and it’s easy to not analyze what those above us are asking. Blindly following obvious errors are disastrous.
17. Reason-Respecting Tendency
People who give meaningless or incorrect reasons for why you should do something will increase the chances of you doing it because it appears to have backing. Always ask the reasons behind the reasons.
D., Munger, Charles T./ Kaufman Peter. Poor Charlie’s Almanack: The Essential Wit & Wisdom of Charles T. Munger. Consortium Book Sales & Dist, 2023.
Ashton Nichols 
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