25 Cognitive Biases that ruin your life:

Warren Buffett calls Charlie Munger as the smartest man he knows. In 1995, Charlie Munger gave a speech at Harvard University about 25 cognitive biases that cause us to make misjudgements - The Psychology of Human Misjudgement.

By learning these biases, you’ll guard yourself against people trying to exploit you. Even better, you’ll guard against your worst enemy: your own brain.

1. Reward and Punishment Super-Response Tendency: "Show me the incentive and I’ll show you the outcome". People overweigh the impact of incentives, often leading to an irrational response. Motivate people by appealing to their interest.

One of the most important consequences of incentive superpower is what I call ‘incentive-caused bias. A man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior.

2. Liking/Loving Tendency: Man will generally strive, lifelong, for the affection and approval of many people not related to him. We judge in favour of people and symbols we like, or ignore their faults. When dealing with those who clearly benefit from your liking, check whether you’ve been influenced. Don’t distort the facts of a situation to comply with your liking.

3. Disliking/Hating Tendency: We distort facts to facilitate hatred or disdain. Take opinions and behaviours at face value rather than in the veil of your disliking or hatred for someone or something. Think logically about arguments, not emotionally about senders of arguments.

4. Doubt/Avoidance Tendency: The tendency to make quick, poorly thought-out decisions during stressful situations. We feel pressure to remove doubt, and this causes ill-informed choices. When stressed, control this by scheduling deliberate delays to strategize before reaching a decision. Use mental models to override misjudgement.

5. Inconsistency-Avoidance Tendency: We like to be consistent in everything we do, say, and everything we are. To save energy, we are often reluctant to change our habits, especially bad ones. These patterns lead to cognitive errors, limiting our choice of actions in life. If you want to change people’s thoughts and actions, expect an overblown resistance.

6. Curiosity Tendency: Curiosity, enhanced by the best of modern education, much helps man to prevent or reduce bad consequences arising from other psychological tendencies. The curious are also provided with much fun and wisdom long after formal education has ended.

7. Kentian Fairness Tendency: Treat people as you would want to be treated, Most do, Few don’t. And it’s those few you want to avoid. Treat people well and let reciprocation take care of the rest.

8. Jealousy/Envy Tendency: Envy is an illusion. We dislike those who make us feel our own inferiority. Jealousy involves a triangle of relationships. Envy involves the self and another. “It is not greed that drives the world, but envy.” -Warren Buffett.

9. Reciprocation Tendency: The tendency to reciprocate actions others have done towards us. A culturally and societally enshrined phenomenon: “One should treat others as they would like to be treated.” Beware of ill-intentioned actions or relationships that feel transactional.

10. Influence-From-Mere-Association Tendency: We think a higher price means higher quality. We favour attractive people. We blame those who deliver bad news. We perceive people or things differently depending on who/what they are associated with, or from our past experiences with them.

11. Simple, Pain-Avoiding Psychological Denial Tendency: There’re two drivers of human nature: 1. Achieve pleasure 2. Avoid pain But we overweigh pain, avoiding short-term discomfort. When you make decisions, think of the 2nd and 3rd order consequences. We should face the truth more often: It’s better to deal with problems before they become bigger problems.

12. Excessive Self-Regard Tendency: We naturally tend to overestimate our own abilities. A healthy amount of humility can keep you from assuming you know everything. It helps to cultivate relationships with people who aren’t afraid to tell you when you’re wrong or need to check yourself.

13. Overoptimism Tendency: We tend to have blind faith in a good outcome or we don’t pay enough attention to the potential for a bad outcome. Optimism motivates us to pursue our goals but must be balanced with pragmatism. Consider what could go wrong and plan accordingly.

14. Deprival Superrreaction Tendency: Kahneman’s Prospect Theory shows we value gains and losses differently. Be aware: If your actions cause someone to lose what they had, even if reasonable, expect an unreasonable response. Don’t let your reaction cloud your judgement of the next best steps.

15. Social-Proof Tendency: In the face of uncertainty, we look to others for answers as to how we should behave, what we should think and what we should do. Occurs due to our natural desire to ‘fit’ in with the crowd. However, we should always question whether the crowd is wrong.

16. Contrast Misreaction Tendency: We think and feel in comparisons. Present your choices with an unfavourable option to push people to the favourable. Evaluate people and objects individually and not by their contrast.

17. Stress-Influence Tendency: Stress triggers adrenaline, causing faster and more extreme reactions. Limit your major decisions while over-stressed.

18. Availability-Misweighing: An idea or fact is not worth more merely because it is easily available to you. When decision-making, gain different perspectives and relevant statistical information rather than relying purely on first judgments and emotive influences.

19. Use-It-or-Lose-It: Our skills and knowledge decline over time if unused. Skills and knowledge that have been mastered will depreciate more slowly than skills that haven’t. You can prevent this tendency by constantly using what you can’t afford to lose.

20. Drug-Misinfluence: Drugs cause a slippery slope of poor decisions that can completely warp your sense of reality. We have so many drugs now, electronic and chemical, that most of us are junkies most of the time.

21. Senescence-Misinfluence: As we get older, our mental abilities decline. It’s going to happen to all of us — there’s no stopping it. But it can be slowed with continuous thinking and learning.

22. Authority-Misinfluence: We trust and are influenced by leaders or authority figures too much. Experts aren’t always right. Influencers don’t always have valuable opinions. Your boss doesn’t own your thinking. Take opinions on their logic, not their sender.

23. Twaddle Tendency: Humans waste a lot of time talking about nothing at all or by scrolling through Instagram, Facebook and Twitter, and suddenly realizing an hour has passed. Value your time. Create artificial barriers to time wasting if you need to get serious work done.

24. Reason Respecting Tendency: We treasure the importance of reasons regardless of their credibility. Providing meaningless or incorrect reasons will increase compliance with directions or requests. When requesting something, add on “because” and watch compliance go up.

25. Lollapalooza Tendency: Extreme consequences arising from combinations of psychological biases acting in favor of a particular outcome. For example, auctions can generate foolish behaviour (ending in regret), because of social proof, loss aversion (FOMO), commitment, and action bias.