Poor Charlie’s Almanack 3rd edition

Author: Charles T. Munger edited by Peter D. Kaufman
Fantastic book: folksy in style but once you get over this excellent advice particularly on the need for a broad education structured by checklists, progressing in life, investing and psychology.  Comfortably the most notes I’ve made on a book.

A portrait of Charles T. Munger
University of Michigan – Maths
Army Air Corps – University of New Mexico (General Science & Engineering) & California Institute of Technology (Thermodynamics and Metereology)
Harvard Law (top 12 of 335)

Wright & Garrett, 
1961 property w/ Otis Booth
1962 set up Munger, Tolles & Hills
1962-1975 Investment Partnership with Wheeler & Marshall

1. Praising Old Age
On death: either a) you are going to perpetual, better afterlife or b) you won’t retain any pain if there is no such outcome
On miserly old age: “can anything be more senselessly absurd that the nearer we are to our journey’s end, we should still lay more provision for it
On complaining of old age: “the best a young person can hope for is to get old before he dies.  Therefore not fitting to complain about getting the best outcome you could ever have reasonably wanted”

On Decency: When you borrow a man’s car, you always return it with a full tank of gas
On Attire: Non-conformist enough in behaviour and opinions that it made sense to chart a very straight course in attire
On opportunity: A few major opportunities, clearly recognisable as such, will usually come to one who continuously searches and waits, witha curious mind that loves diagnosis involving multiple variables.  And then all that is required is a willingness to bet heavily when the odds are extremely favourable using resources available a a result of prudence and patience in the past

2. The Munger approach to Life. Learning and Decision Making

Niche/specialism benefit: We often find that the winning system goes almost ridiculously far in maximizing and or minimisng one of a few variables – like the discount warehouses of Costco

Be willing to change your mind: “Faced with a choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy with the proof” J.K. Galbraith

Stocks that are preferred:
     – easy to understand
     – dominant
     – sustain and thrive in all markets
Financial & Other factors need to be considered in any analysis
     – regulatory
     – labour, supplier & customer relations
     – tech changes
     – strengths & weaknesses
     – pricing power
     – scalability
     – enviro issues
     – hidden exposures
     – pensions & stock impact
     – owners
Looking for moats i.e. sources of competitive advantage
Working within your circle of competence: if you cannot respond to the next question, you lack true mastery & are outside the circle
Aim: compare the value per share of the business vs. value per share price
     – “A great business at a fair price is superior to a fair business at a great price”

Reading suggestions:
     Key text: ‘The Intelligent Investor’, Benjamin Graham
     Outcompeting: The Selfish Gene
     Outcoperating: Darwin’s Blind Spot, Ice Age

Investing Principles checklist
     Risk: measure risk, esp. reputational
          – incl. margin of safety in measurement
          – avoid dealing w/ ppl of questionable character
          – insist on proper compensation for risk assumed
          – beware of interest rate & inflation exposures
          – avoid big mistakes; shun permanent capital loss
     Independence: ‘only in fairly tales are emperors told they are naked’
          – Objectivity and rationality require independence of thought
          – Agreement/disagreement of others doesn’t = right. Correctness of analysis and judgment does
          – Mimicking the herd => regression to the mean
          – Become a life-long learner & voracious reader
          – Will to prepare is more important than will to win
          – Develop fluency of mental models from major academic disciplines
          – Keep asking ‘Why, why, why?’
     Intellectual humility
          – stay in circle of competence
          – identify and reconcile discomfirming evidence
          – resist craving for false precision and false uncertainties
          – never fool yourself, you are the easiest person to fool
     Analytic rigour
          – determine value apart from price; progress from activity; wealth from size
          – better to remember the obvious than grasp the esoteric
          – be business analyst, not market/macroeconomic/security analyst
          – consider totality of risk and effect; look always at potential second order and higher level impacts
          – think forwards and backwards – invert, always invert
     Allocation: proper allocation is an investor’s #1 job 
          – remember opportunity cost
          – good ideas are rare: when odds in your favour bet heavily
          – don’t fall in love with an investment: be situation dependent and opportunity driven
     Patience: resist human activity to act
          – ‘compound interest is the 8th wonder of the world’, Einstein
          – avoid unnecessary transaction taxes and frictional costs – don’t take action for its own sake
          – be alert for the arrival of luck
          – enjoy the process along with the proceeds as the process is where you live

     Decisiveness: when proper circumstances present themselves, act with decisiveness and conviction

          – ‘be fearful when others are greedy, and greedy when others are fearful’
          – opportunity doesn’t come often so seize it when it does
          – opportunity meeting the prepared mind = the game
     Change: live with change and accept unremovable complexity
          – recognise and adapt to the world, don’t expect it to adapt to you
          – continually challenge and adapt your ‘best loved ideas’
          – recognise reality even when (especially when) you don’t like it
     Focus: keep things simple and remember your goal
          – remember reputation and integrity are your most valuable assets and can be lost in a heartbeat
          – guard against effects of hubris and boredom
          – don’t overlook the obvious by drowning in minutiae
          – be careful to exclude unneeded info or slop, “a small leak can sink a great ship”
          – face your big troubles, don’t sweep them under the carpet

On honesty:
“If you tell the truth you don’t have to remember your lies”, Louis Vincenti
“Ability will get you to the top but it takes character to keep you there”

3. Mungerisms: Charlie Unscripted – Highlights from Recent Berkshire Hathaway and Wesco Financial Annual Meetings
Business fundamentals:
     Business model: Generate float (cash from insurance premiums that can invest before claims period) @ 3% & invest in biz that generates 13%
     Attitude to insurance: don’t mind lumpy biz therefore write less biz when conditions unfavourable => not a small advantage
     Size slows growth
     Acquisitions: i) 2/3 of acquisitions don’t work, ours work bcos we wait for no brainers ii) v dangerous to sit waiting for deals to come in; must root around iii) synergies generally overclaimed
     Managing subsidiaries: choose ppl you admire and let them get on with it 
     Cost of capital: is rubbish, opportunity cost is what matters
     IPOs: average person gets creamed in thse
     Stock markets
          – partly valued on rational projections of producing future cash
          – partly valued like Rembrandt painting: go up as prices historically have gone up

     Saying no: recognise that it’s difficult to find something really gd.  So, if you are saying ‘no’ 90% of the time, you’re not missing much in the world
     Focus investing: hard to find good investments so concentrate on a few.  Bet big when have opportunity (20 tickets)
          – idea of excessive diversification is madness: if take Berk. H top 15 decisions out => average record, made money betting on sure things
          – buy undervalued => have to think about selling when reaches intrinsic value
          – buy great biz => can sit on your arse
     Quality: pay for quality biz & ppl
     Types of mistakes: 1) doing nothing/omission 2) buying small when should have bought big
     Start investing: I’d work with v.small stocks searching for mispriced opportunities

     Serpico effects: anyone rationalises it’s okay to do something as everyone is doing it

     EBITDA = bullshit earnings
     “Lincoln once said how many legs does a dog have if you call a tail a leg.  Four.  Calling a tail a leg doesn’t make it a leg”
     Pensions: expectation of 9% CAGR but 6% more likely
     Accountants: whose bread I eat, his song I sing

Stock options:
     Don’t use
     Valuing them short-term Black-Scholes works, nothing for long-term
     Accounting for them: theory is that there is no cost, but reality is both expense and a dilution
     Source: start by trying to hedge vs. interest rate changes => lumpy profit => derivatives to smooth = Mad Hatters T Party
     Hates GAAP as applied to derivatives and swaps

     Be satisfied: some1 is always getting rich faster than you
     How to get rich: learn wisdom litle by little and slug it out @ the end of the day most ppl get what they deserve
     Reduce material needs: returns can decline d2 inflations therefore don’t hv silly needs

Reading suggestions: 
     The Warren Buffet Portfolio, R.G. Hagstrom
     FIASCO, Frank Portnoy
Lectures: Jack McDonald, Stamford Business School – look online

4. Harvard School Commencement Speech, 13 June 1986

Carson gave 3 guarantees for misery:
     i] ingesting chemicals to alter mood or emotions
     ii] envy
     iii] resentment

Charlie would add additional:
     iv] be unreliable
     v] learn everything based on your own experience vs. standing on the shoulders of giants
     vi] stand down when you get your 1st, 2nd, 3rd reverse in life
     vii] don’t look at problems from another angle or at disconfirming evidence of the views you cherish

5. A lesson on elementary, worldly wisdom as it relates to investment management & business, 14 April 1994
Multi disciplinary models are key:
     Basic arithmetic:
          – compound interest
          – probability: permutations & combinations (Fermat/Pascal system)
     Accounting & its limitations
     Communications: always have – who, what, when, where and why
     Statistics: bell shaped curves
          – breakpoints
          – back up systems
     Physics: critical mass
          – cognitive functions vs. peceptual function
          – decision making failures
          – Pavlovian association
     Economics: view as an ecosystem – niche benefits
          – market <> efficient.  Pari-mutual system i.e. everyone bets and the odds change based on bets
          – scale economics
          – distinguish btwn when tech can help you vs. kill you; how much stays with you (textile & loom example)
          – competitive destruction why does it happen in some industries and not others, or even in different markets in a industry
     Economics & psychology: what makes sense to an investor doesn’t necessarily make sense to a manager (I ain’t in the business of selling tackle to fish)
     Management (Jack Welch)
          – preleader success all about growing yourself, as a leader about growing others
          – what you measure and reward is what you get
          – never allow anyone btwn you and your suppliers & customers

Investing – moved from pure Graham (first $200-300m) to including management, moats & momentum to identify great businesses

6. A lesson in elementary, worldly wisdom revisited, 19 April 1994
“If we compete against a bunch of people that really know bridge when ours don’t, it’ll be just one more disadvantage we don’t need”

Multi disciplinary needed: be wary of heavy ideology
     – Migram experiment: electricity => 65% torture
     – About authority but also denial, misery induced

Psychology: “what a man wishes, that he also will believe”, Demosthenes
     – Psychological denial
     – Incentive caused bias
     – Consistency principal & operant behaviour (repeat what worked before) => habitual activity
     – Social proof
     – Pavlovian mere association: shooting the messager
=> must sometimes learn to quit when holding a much loved hand

     Only the Paranoid, Andy Grove
     p250 Graham books

Question: Joe Floms in Gladwell 100 hour book?

7. Practical thought about practical thought? 20th July 1996
General notions in solving problems
     1. Simplify problems by deciding big “no-brainer” questions first
     2. Numerical fluency required
     3. Think problems both forward & backwards
     4. Use elementary academic wisdom from numerous disciplines
     5. Lollapalooza effects from large combination of factors

Coca-Cola example
Turn $2m investment in 1884 to $2tr in 2034 (150 years)

A) How to make it
Strong, legally protected trademark
Go global
     – 2034 => 8bn population, 25% ingestion of water requirement => 16ox x 8bn => 2.92bn 8 oz servings
     – 0.04 profit per 8oz serving
     – 1/2 new market & rest competitors
Create conditioned reflexes => auto-catalytic reaction (product of reaction is catalyst for a reaction)
     1) Operant conditioning
          i] food value in calories
          ii] flavour, texture, aroma
          iii] stimulus by sugar or coffee
          iv] cooling or warming effect
               -> max rewards
               -> minimise possibility that desired reflex extinguished through operant conditioning of competing products by making always avail
     2) Classical/Pavlovian conditioning
          – advertising to assoc w/ things admired
          – exotic name
          – look like wine not water
          – carbonate like champagne
          – unique flavour
     3) Social proof & secrecy of formula
Logistics: a) sell as syrup b) ready made in boxes
Advertising: 40% price syrup on adverts
Manufacturing: few syrup making plants but a number of bottling plants across the world
     – set up 1st sale price to make profit for syrup/boxes
     – make bottlers subcontractors

B) In reverse
     a) avoid aftertaste impairment
     b) don’t use cola name – brand important
     c) avoid success envy
     d) no sudden change of flavour even if better in blind tastes

C) Real case
     – gave bottlers perpetual bottling franchise -> lost pricing control
     – change flavour (New coke, 1985 led to backlash)

8. The Need for More Multidiscipliniary skills from professionals: Educational Implications, 24 April 1998
Do broadscale professionals need more multidisciplinary skills?
     a) incentive caused bias: assume what is gd for professional gd 4 civilisation (“whose meal I eat, whose song I sing”)
     b) man w a hammer: to a man with a hammer, every problem looks like a nail

Best education narrow-scale model e.g. pilots (example where incentives for effective education strongest & most closely measured)
1) Wide formal education of anything useful to piloting
2) This knowledge raised to practice-based fluency
3) Taught to invert (e.g. to avoid what he does not want to happen)
4) Training allocated so what is most important gets the most training
5) Checklist routines mandatory
6) Post original training forced into special knowledge maintenance routine e.g. regular use of aircraft simulator

1) 2 track analysis
     – what are the factors that really govern the interests involved, considered (e.g. macro & micro level economic factors)?
     – what are the subconscious influences, where the brain at a subconscious level is automatically forming conclusions (influences from instincts, emotions, cravings & so on)
2) Investing & decision making checklist (see earlier chapter)
3) Ultra simple general problem solving
     – decide the big no-brainer questions 1st
     – apply numerical fluency
     – invert (think it through in reverse)
     – apply elementary multi-disciplinary wisdom
     – watch for combination of factors: Lollapalooza(
4) Psychology based tendencies: see later chapter

Reading: Getting to Yes, Roger Fisher
Concept: Tragedy of the Comms, Garrett Hardin
9. Investment Practices of Leading Charitable Foundations, 14 October 1998
Charitable foundations try to employ diverse strategy => consultants/recruiters to hire ppl to do so => relying on security analyst advice (who are incentivised by selling commissions or fees for enthusiastic support of stocks)
     => total cost can be 3% of foundation net work p.a. = fine if returns 17% p.a. but not if only 5%
     – argue that it’s ok as hire the best fund managers h’eva 90% Swedish automobile drivers considered themselves above average

Other options:
     1) Indexes
     2) Berkshire way: v passive in much admired corporations
     3) Supplement unleveraged investment w/ investment in limited partnerships through
          – VC in high tech
          – leveraged buyouts
          – leveraged equity
          – leveraged security & derivatives

Diversification: not a fan of this.  If invested in 3 fine corporations long term stay securely rich
     – Why worry if others are earning a bit more or a bit less
     – Particularly if long term results superior by reason of lower costs, emphasis on long term effects  concentration of preferred choices
          -> v. many family foundations would hv done better if not sold a single share of the founders stock
     – Berkshire: no direct foreign investment but much foreign investment through the comes they own
          – many investors underestimate that in foreign companies stakeholders other than shareholders stand higher in line for benefits from profit 

10. Breakfast Meeting of the Philanthropy Roundtable, 10 November 2000
Wealth effects: 
     – increase stock prices => increase spending => increase stock
     – stock prices => decrease pension cost accruals => increased earnings
     – when considering wealth effect ppl often discount, wrongly, pension impact e.g. if pension double => dentist leasing new car
          -> wealth effects from stock price increase can get v. large when consider impact of stock options and the Rembrandt effect on stocks
          => stock value becomes irrationally high – not something efficient market theory predicts
Bezzle: embezzlement => v. strong spend impact, embezzler spends & employee continues to spend as doesn’t know assets gone
Multiplier effect: don’t forget this

Febezzlement: important functional effect of bezzle that are large but not promptly self-destructive
     e.g. spending 3% of assets on managing portfolio
            Study (when?) showed in 15 yr period mutual fund investor gained 7.25% p.a. vs. 12.8% p.a. in stock market d2 charges & changing funds 4 poor perf

If I am right, our present prosperity has had a stronger boost from common stock price related wealth effects than has been the case in many former booms.  If so, what was greater on the upside int he recent boom could also be greater on the downside at some time of future stock price decline

11. The Great Financial Scandal of 2003, Summer 2000
Quant Tech Parable
     – brilliant founder runs company until 1982
     – accounting of employee stock options => colapse in 2003

1982: engineering company designed small power plants worldwide => $100m profit on $1bn of sales
     – Cost nearly all compensation of technical employees
          – 70% Direct employee compensation (30% base salaries, 40% incentive bonuses)
          – All comp in cash & compensation tailored to precise performance standards established for individual or sall groups
     – Value 15x earning = $1.5bn
Post death growth: profits stay fixed @ 10% revenue w/ revenue growth of 20% CAGR, then profit maintain % but growth slow to 4% CAGR

Post death: recruit CEO & CFO of company 20x earning despite worse balance sheet under remit to increase stock price
     – as no scope to increase margin or revenue therefore financial engineering only way to do this
     – stock option law
          a) provided employees given 1st options @ below market price, tho equivalent to cash, would not count as compensation expense when determining company profit
          b) but tax man did include it
               => give stock instead of cash bonus, whilst using bonus money saved to buy back shares issues in stock options increase earnings 400% to 500m
               BUT: don’t want to kill the golden goose so exercised ‘wisely constrained falsehood’ – the dollop by dollap system

Dollop by dollop system:
     1) moderate change is less likely to be noticed
     2) over long term above will be obscured
     3) once 1st few statements blessed, v. embarrassing for outside accountants to change viewpoint
     4) can argue that using it to attract/retain employees
Reasonable conditions to decide how big a dollop to do: increase consistently providing consistent profit growth never more than 40%
Result: increase earning 25% CAGR instead 20% CAGR
Further tailoring: started not repurchasing stocks or decreasing cash bonus to ensure cash grew more quickly

End result 2002: $16bn earning on $47bn revenue (incls much interest on cash equivalent that would not hv been present w/ net issuance of new stock) $85bn in cash => market cap 90x earning or $1.4tr
Hubris: growth now 4% CAGR so couldn’t keep growing profits => huge price decline => accounting checks & problems found

Real-life earning check to avoid this = compare income taxes paid vs. earning growth 

+ some provision stock options made vs. earnings
+ total cost charged usually far less than total cost incurred
+ cost charged to carry usually manipulated down

12. Academic Economics: Strength & Faults after Considering Interdisciplinary Needs, 3rd October 2003
Economics criticism
     1) Fatal unconnectedness => man w/ a hammer syndrome
     2) Failure to follow fundamental full attribution ethos of hard science: always attribute where possible
     3) Physics envy => adoptions of hard form efficient market theory
          – BUT: “everything should be made as simple as possible but no more simple”, Einstein
     4) Too much emphasis on macroeconomics gives two micro economic examples Furniture Mart & Les Schwab
          – Extreme success likely caused by some combo of the following:
               a) extreme max/min of 1 or 2 variables
               b) adding success factor => non-linear lollapalooza effect
               c) extreme gd performance over many factors
               d) catching & riding a wave
     5) Too little synthesis e.g. supply & demand say that increase price => decrease volume but Tim Ferris & price
          – When does increase price => volume
               a) luxury goods: show-off ability of item increases & assumption that better product
               b) non-luxury: esp industrial goods where high reliability a factor
               c) increase price & use extra revenue to make product or sales work better
               d) increase price & bribe/unethical uses to drive sales e.g. other person’s purchasing agent, mutual fund commission to IFAs
          – Not enough synthesis of concepts (uses example of hotel in pimp area & retirees to help show how interact)
               i] Division of labour: Adam Smith pin factory (10 specialised workers = 48k/day vs/ 200 each doing all)
               ii] Comparative advantage in trade, Ricardo
     6) Extreme & counterproductive psychological ignorance: e.g. why one slot machine most winnings = because higher ratio near misses => psych response
     7) Too little attention to second & higher order effects
          – legislation => 11% worker comp in California vs. 2% in Utah (Mormon)
          – reciprocal tendency in psychology: Niederhoffer effect gamed system by understanding graduates did hard work for professors therefore gv them As
               -> humans look to game systems
          – 2nd & 3rd order effects of trade with China
               – v talented but poor & backward nation
               – more prosperous in US but China grows faster & absorbs all modern tech in world, is this good for USA?
                    -> best answer “if don’t trade with them, other nations will do it and China rises all the same & lose Ricardo diagnosed benefits
     8) Not enough attention to febezzlement
     9) Not enough attention to virtue and vice effects: virtue effect e.g. religion and impact on reliability ethos

Trust is key: “No matter how smart you are, there are smart ppl out there who can fool you if they really want to.  So, be sure you can trust the smart ppl you work with

Reading: Principles of Microeconomics – N. Gregory Mankiw
Reading: Paul Kaufman essays

13. USC Gould School of Law Commencement Address, 13 May 2007
I constantly see ppl rise in life who are not the smartest, sometimes not even the most diligent.  But they are learning machine.  They go to bed every night a little wiser than they were in the morning.  And boy, does that habit help, particularly when you have a long run ahead of you.

Avoid (inversion):
     – sloth
     – unreliability
     – intense ideology
Iron prescription: don’t hv an opinion until can state arguments against my position better than the ppl in oppositiion
     – Self pity: doesn’t help even if you child is dying of cancer
     – Self serving bias (what is gd for you is gd for all): but be aware others will be biased in this way e.g. Saloman Brother lawyers
     – Perverse incentive systems: e.g. billable hours
     – Associations w/ ppl you don’t like e.g. boss

14. The Psychology of Human Misjudgment
Humans are a) social animal b) used to limited size dominance hierarchies (trust those w/in & distrust those outside)
Magicians take advantage of human misjudgment:
     – Make statue of liberty disappear: if a stimulus is kept beyond certain level (e.g. rotating platform) it is imperceptible
     – Watch removal: contrast based error utilised i.e. pressure place elsewhere (much like warm & cold water bucket test)

1) Reward & punishment super response tendency: the impact of incentives & disincentives on changing cognition & behaviour
     – Should appeal to self-interest & not to reason (Saloman Brothers QC example)
          e.g. Fedex model worked on having all loading done on planes in a central location overnight thus success when starting paying per shift not hour
     – Prompt rewards work much better than delayed rewards in changing behaviour (see BF Skinner expierments)
     – Random withdrawal of rewards then keeps behaviour in longest in plce
          -> monomancial rewards have been shown to be effective in improving autistic children
     – Incentive caused bias seen in professional services.  As a buyer must therefore:
          a) fear professional advice when it is good for the advisor
          b) learn basic elements of the trade sold by the advisor
          c) double check what is told
     – Bad behaviour is intensely habit forming 
          -> tradeoffs when implement systems e.g. commission only sales is v. efficient but makes it hard for ppl to keep their morals
     – Granny’s Rule: children eat carrots before dessert

2) Liking/loving tendency: e.g. gosling for mother duck
     – As a conditioning device it makes lovers:
          a) ignore faults & comply with wishes of the object of their affections
          b) favour ppl/products assoc w/ object
          c) distort other facts to facilitate love
               – can => admiration => feedback loop & extreme behaviour

3) Disliking/hating tendency
     – Elections are a way of channeling hatreds & disliking into a non-lethal platform
     – Opposite effects to 2)

4) Doubt avoidance tendency: quickly remove doubt by reaching a decision
     – Hence have enforced delay in courts before decision making.  Also explains leaps of faith
     – Causes a) puzzlement b) stress

5) Inconsistency avoidance tendency: reluctant to change & v hard to eliminate bad habits
     – Why evolved: a) facilitated faster decisions b) cooperatiing in groups would be difficult if everyone constantly changing view
     – As a result courts hear both sides to minimise ‘first conclusion bias’ and allow
     – Always reexamine fixed conclusions & attitudes e.g. Einstein & Darwin
     – Corollary: if make big sacrifices to assume new identify intensify devotion to it i.e. initiation rites

6) Curiosity tendency

7) Kantian fairness tendency
     – Kant famous for his ‘categorical imperative’: humans follow behaviour patterns that if followed by all others make surrounding human system work better for all e..g queuing

8) Envy/jealousy tendency

9) Reciprocity tendency: reciprocate favours & disfavours
     – e.g. salesmen providing coffee (on a individual level you still lose but not if acting for employees thus Walton banned acceptance of all favours by purchasing)
     – Cialdini experiment w/ taking juvenile deliquents to a zoo changed odds from 1/6 to 1/2

10) Influence from mere association tendency
     – Antidotes
          a) carefully examine past success looking for accidental non-causative factors
          b) look for dangerous aspects of new undertaking that not present when pas successes occurred
     – Don’t underappraise competitor because you dislike them
     – Avoid Persian Messenger Syndrome (killing bearer of bad news)

11) Simple paid-avoiding psychological denial e.g. that son died

12) Excessive self-regard tendency
     – & endowment effect: overapprove/value your own possessions
     – self regard => strongly prefer ppl like yourself (seen in lost wallet experiment: finder more likely to return if identity clues similar to self)
          – can cause hiring issues in firms a) hiring same type ppl/those like selves b) overvalue own opinion from interviews over CV & past record
     – Tolstoy worth about psyche of the worst criminals:
          a) don’t believe they did the crime
          b) believe that considering the pressures & disadvantages of their lives understandable & forgivable that behaved as they did
     – Avoid excessive self regard tendencies by:
          a) having meritocratic demanding culture
          b) severance of worst offenders/performers

13) Overoptimism tendency: avoid through use of probability math

14) Deprival super-reaction tendency: pleasure of gaining $10 does not match quantity of displeasure from losing $10
     –  if man gets something he wants greatly then it’s suddenly taken away, reacts as if long owned the reward
     – often disframe misfortune: $10m in cash but annoyed if lose $100 from $300
          => bureaucratic infighting over loss of territory
     – can see this tendency:
          – protecting ideological/religious views by triggering hatred to non-believers (would break comfortable world if believed)
          – companies going bust as workforce won’t decrease wage (not rationale if => all job losses)
          – at work in auctions & slot machines (lots of near misses)

15) Social proof tendency: e.g. elevator & everyone standing looking at wall
     – better to manipulate children’s peers than exhort offspring to change
     – most likely when a) puzzled b) stressed
     – Serpico Syndrome: social proof and incentives combining
     – Social proof can be seen through inaction as well as action e.g. bystanders in death of Kitty Genovese

16) Contrast-misreaction tendency: e.g. overpaying $1000 for leather dashboard as car cost $65000

17) Stress-influence tendency
     – Pavlov showed that extreme stress in dogs => change/reverse in behaviour (afta seeing effects when lab flooded), results showed
          a) can classify dogs as to how easy to breakdown
          b) harder to break then harder to return to prebreakdown state
          c) any dog could be broken
          d) couldn’t reverse a breakdown except by reimposing stress

18) Availability misweighing tendency: ‘when I’m not near the girl I love, I love the girl I’m near’

19) Use it of lose it tendency: keep practicing or forget

20) Drug misinfluence tendency: avoid at all costs

21) Senescence misinfluence tendency: continuous thinking, practice & learning can delay the inevitable

22) Authority misinfluence tendency: e.g. nurse see R. Ear and puts ear drops in anus
     – Miligram social experiment typically given as example but this is Lollapalooza effect i.e. social proof also acting

23) Twaddle tendency: bees if honey straight up.  Keep these ppl out of the way 

24) Reason respecting tendency: ppl respect reasons unduly i.e. let you go to front of photocopy line if just state ‘I have to make some copies’
     – Give reasons when given directions: who, what, where , when why

25) Lollapalooza tendency: extreme tendencies from confluence of psychological tendencies acting in favour of one outcome e.g. used by Cults

Reading: ‘The Nurture Assumption’ & ‘No two alike’, Judith Harris