Home > Uncategorized > Charlie Munger on The Psychology of Human Misjudgment

Charlie Munger on The Psychology of Human Misjudgment

25iq

“…the brain should be using the simple probability mathematics of Fermat and Pascal applied to all reasonably obtainable and correctly weighted items of information that are of value in predicting outcomes…”  Charlie Munger  http://www.rbcpa.com/Mungerspeech_june_95.pdf

To cope with information and computation overload, humans have developed simple “rules of thumb” called “heuristics” which  allow them to make decisions.  It would be great if people could do what Charlie describes above, but it is just not possible.  Decision making heuristics are sometimes beneficial and sometimes not.  Catching a fly ball in a baseball games involves a heuristic which works very well.  Really skillful people who know their limitations well can sometimes use heuristics to their advantage including his partner Warren Buffett and Ajit Jain.  Munger points out:

“There is a close collaboration between Warren and Ajit Jain. I’ve known both a long long time and if there are two better people on this…

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