Saturday, June 20, 2009

The Psychology Of Human Misjudgement: Envy

Charlie Munger is Warren Buffett's right hand man at Berkshire Hathaway. Over the next few weekends, we'll be summarizing the text he authored titled "The Psychology Of Human Misjudgement", where he describes some of man's tendencies. By understanding and learning from these tendencies, we better equip ourselves to avoid psychological biases when investing.

Envy is fairly commonly understood by humans, yet one will not find it discussed in psychology texts. Munger believes Warren Buffett to be roughly correct when he says "It is not greed that drives the world, but envy." Yet the words 'envy' and 'jealousy' were often absent from the indexes of psychology textbooks Munger has studied.

Munger argues that the origins of envy are the result of a desire for man to acquire scarce resources, and then the feelings of conflict associated with seeing those resources in the hands of others. Munger also notes that jealousy is fiercest among siblings, particularly at younger ages. It is also exaggerated in myth, religion and literature, as in many of those accounts it triggers hatred and injury.

In modern life, jealousy is visible in many forms. University communities are driven to anger when it becomes known that an employee in money management or surgery is given annual compensation far above standard professorial salaries (in order to compete with what the employee could command in private employment). In order to avoid conflicts and hurt feelings, many large law firms will treat all senior partners alike, even if their contributions to the firm coffers are widely different.

Munger also believes this tendency to be a taboo topic, as labelling someone as jealous is considered to be an extreme insult. While this may be an explanation for why the term is absent from psychology textbooks, Munger believes it accounts for so much of man's behaviour that it should be regarded as an important topic.

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