Sunday, June 7, 2009

The Psychology Of Human Misjudgement: Doubt Avoidance

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.

Because it has helped our ancestors survive, humans have a tendency to quickly eliminate doubt by reaching some decision. As an example, Munger notes that the worst thing an animal can do in the face of a predatory species is to take time to deliberate.

This tendency is so strong in humans (and other animals), that man must often force himself to be objective when his natural tendency is not to do so. Judges and jurors are forced to delay decisions exactly for this reason. By taking time to consider all issues, rather than following his gut feelings or initial instincts, man can better work through circumstances in an objective manner.

Munger attributes the success of religion in society to this doubt-avoidance tendency. He argues that although individuals may believe their own faith comes from revelation, this does not explain the seemingly inconsistent faiths of others.

Munger believes this doubt-avoidance tendency is triggered by some combination of puzzlement and stress. An unthreatened man, on the other hand, has no need to rush to a decision and is therefore not forced to remove doubt.

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