"Poor Charlie’s Almanack" by Charles T. Munger

• Lollapalooza -- As personified by Charles Munger, the critical mass obtained via a combination of concentration, curiosity, perseverance, and self-criticism, applied through a prism of multidisciplinary mental models. 
• Charlie was fascinated by the power of physics and its boundless reach. 
• Physics-like problem solving was to become a passion for Charlie and is a skill he considers helpful in framing the problems of life. He has often stated that anyone who wants to be successful should study physics because its concepts and formulas so beautifully demonstrate the powers of sound theory. 
• However, he never forget the sound principles taught by his grandfather: to penetrate on the task immediately in front of him and to control spending. 
• You know, he [Charles] comes equipped for rationality, and he applies it in business. He doesn't always apply it elsewhere, but he applies it in business, and that’s made him a huge business success. 
• The [law] firm largely eschews conventional law firm marketing, following Charlie’s advice that “The best source of new legal work is the work on your desk.” 
• “Choose clients as you would friends.” 
• “I am a biography but myself. And I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personalities o f the people who developed them. I think you learn economics better if you make Adam Smith your friend. 
• There are always people who will be better at something than you are. You have to learn to be a follower before you become a leader. People should learn to play all roles. 
• When you borrow a man’s car, you always return it with a full tank of gas. 
• Do the job right the first time. 
• Be responsible. 
• Daddy [Charles] raised us to be skeptical, even contrarian, and that was a particularly helpful way of thinking to carry into the maelstrom of the late sixties. 
• Find out what you're best at and keep pounding away at it. 
• Charlie has the ability to capture knowledge with simple descriptions. 
• You must know the big ideas in the big disciplines and use them routinely--all of them, not just a few. 
• Simplicity is the end result of long, hard work, not the starting point. 
• Charlie likes the analogy of looking at one’s ideas and approaches as “tools”. When a better tool (idea or approach) comes along, what could be better than to swap it for your old, less useful tool? 
• Especially important examples of these models include the redundancy/backup system model from engineering, the compound interest model from mathematics, the break-point/tipping-moment/auto-catalyst models from physics and chemistry, the modern Darwinian synthesis model from biology, and cognitive misjudgment models from psychology. 
• There is no better teacher than history in determining the future… There are answers worth billions of dollars in a $30 history book. 
• Perhaps the most valuable result of all education is the ability to make yourself do the thing you have to do, when it ought to be done, whether you like it or not. 
• Munger, like Buffett, believes a successful investment careers boils down to only a handful of decisions. 
• In the short run, the market is a voting machine. But in the long run, it is a weighing machine. 
• Often, as in this case, Charlie generally focuses first on what to avoid--that is, on what NOT to do--before he considers the affirmative steps he will take in a given situation. 
• Charlies strives to reduce complex situations to their most basic, unemotional fundamentals. Yet, within this pursuit of rationality and simplicity, he is careful to avoid what he calls “physics envy”, the common human craving to reduce enormously complex systems (such as those in economics) to one-size-fits-all Newtonian formulas. 
• Quickly eliminate the big universe of what not to do, follow up with fluent, multidisciplinary attack on what remains, then act decisively when, and only when, the right circumstances appear. 
• If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. 
• Charlie refers to a company’s competitive advantage as its “moat”: the virtual physical barrier it presents against incursions. Superior companies have deep moats that are continuously widened to provide enduring protection. 
• A great business at a fair price is superior to a fair business at a great price. 
• Charlies self-confidence is based not on who, or how many, agree or disagree with him, but on his ability to objectively view and measure himself. 
• Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company’s owners are slim at best. 
• All intelligent investing is value investing--acquiring more than you are paying for. You must value the business in order to value the stock. 
• The man who doesn’t read good books has no advantage over the man who can’t read them. 
• No wise pilot, no matter how great his talent and experience, fails to use his checklist. 
• Objectivity and rationality require independence of thought. 
• Mimicking the heard invites regression to the mean. 
• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day. 
• If you want to get smart, the question you have to keep asking is “why, why, why?” 
• Use of the scientific method and effective checklists minimizes errors and omissions. 
• Think forwards and backwards--Invert, always invert. 
• When proper circumstances present themselves, act with decisiveness and conviction. 
• Be fearful when others are greedy, and greedy when others are fearful. 
• Obviously, the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be. 
• Focus--Keep things simple and remember what you set out to do. 
• In the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: preparation. Discipline. Patience. Decisiveness. 
• Example is not the main thing in teaching--it is the only thing. 
• Taking advantage of a cheap stock price on the stock exchange is one thing, but taking advantage of partners or old ladies is something else--something Charlie just doesn’t do. 
• We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. 
• Remember Louis Vincenti’s rule: Tell the truth, and you won’t have to remember your lies. It’s such a simple concept. 
• If you can generate float at three percent and invest it in business that generates thirteen percent, that’s a pretty good business. 
• Success means being very patient, but aggressive when it’s time. 
• We’re partial to putting out large amounts of money where we won’t have to make another decision. 
• There are two kinds of businesses: The first earns twelve percent, and you can take the profits out at the end of the year. The second earns twelve percent, but all the excess cash must be reinvested--there’s never any cash. 
• There are some things you should pay up for, like quality businesses and people. 
• This is a good lessons for anyone: the ability to take criticism constructively and learn from it. 
• Over many decades, our usual practice is that if [the stock of] something we like goes down, we buy more and more. 
• Really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act. 
• I don’t know anyone who [learned to be a great investor] with great rapidity. 
• So the game is to keep learning. You gotta like the learning process. 
• If you don’t keep learning, other people will pass you by. 
• With so much money riding on reported numbers, human nature is to manipulate them. And with so many doing it, you get Serpico effects, where everyone rationalizes that it’s okay because everyone else is doing it. It is always thus. 
• Indexing can’t work well forever if almost everybody turns to it. But it will work alright for a long time. 
• The ethics of Wall Street will always average out to mediocre at best… 
• Once you start doing something bad, then it’s easy to take the next step--and in the end, you’re a moral sewer. 
• Creative accounting is an absolute curse to civilization. One could argue the double-entry bookkeeping was one of history’s greatest advances. Using accounting for fraud and folly is a disgrace. In a democracy, it often takes a scandal to trigger reform. 
• I think that, every time you see the word EBITDA [earnings before interest, taxes, depreciation, and amortization], you should substitute the words “bullshit earnings”. 
• Pension fund accounting is drifting into scandal by using unrealistic assumptions. 
• People who have loose accounting standards are just inviting perfectly horrible behavior in other people. 
• A stock option is both an expense and dilution. To argue anything else is insane. 
• People don’t think about the consequences of the consequences. 
• I think a good litmus test of the mental and moral quality at any large institution [with significant derivatives exposure] would be to ask them, “Do you really understand your derivatives book?” Anyone who says yes is either crazy or lying. 
• I’ll be amazed if we don’t have some kind of significant [derivatives-related] blowup in the next five to ten years. 
• Trying to buy people off is like trying to put out a fire by dousing it with gasoline. 
• There’s an important lesson here: Once wrongdoers get rich, they get enormous political power and you can’t stop it, so the key is to nip things like this in the bud. 
• You must know the big ideas in the big disciplines and use them routinely--all of them, not just a few. 
• You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems. 
• The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare. 
• Organized common (or uncommon) sense--very basic knowledge--is an enormously powerful tool. 
• Par of [having uncommon sense] is being able to tune out folly, as opposed to recognizing wisdom. 
• The more basic knowledge you have, the less new knowledge you have to get. 
• There’s a lot wrong [with American universities]. I’d remove three-fourths of the faculty--everything but the hard sciences. 
• Life is more than being shrewd in wealth accumulation. 
• A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc. 
• If your new behavior earns you a little temporary unpopularity with your peer group, then the hell with them. 
• If you’re comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what?! Someone will always be getting richer faster than you. This is not tragedy. 
• The idea of caring that someone is making money faster [than you are] is one of the deadly sins. 
• Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts… Slug it out one inch as a time, day by day. At the end of the day--if you live long enough--most people get what they deserve. 
• In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time--none, zero. 
• Most people will see declining returns [due to inflation]. One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life--you don’t need a lot of material goods. 
• Once you get into debt, it’s hell to get out. Don't’ let credit card debt carry over. You can’t get ahead paying eighteen percent. 
• While susceptibility varies, addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken. 
• “Invert, always invert”. It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward. 
• What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t change together on a latticework of theory, you don’t have them in a usable form. 
• You’ve got to have models in your head. And you’ve got to array your experience--both vicarious and direct--on this latticework of models. 
• What are the models? Well, the first rule is that you’ve got to have multiple models--because if you have just one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does. 
• And the models have to come from multiple disciplines--because all the wisdom of the world is not to be found in one little academic department. 
• You may say, “My God, this is already getting way too tough”. But, fortunately, it isn’t that tough--because eighty or ninety important models will carry about ninety percent of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight. 
• First there’s mathematics. Obviously, you’ve got to be able to handle numbers and quantities--basic arithmetic. 
• And the great useful model, after compound interest, is the elementary math of permutations and combinations. 
• It’s not that hard to learn. What is hard is to get so you use it routinely almost every day of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And it’s fundamental truth. So you simply have to have the technique. 
• At Harvard Business School, the great quantitative thing that bonds the first-year class together is what they call “decision tree theory”. 
• If you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an ass-kicking contest. You’re giving a huge advantage to everybody else. 
• Obviously, you have to know accounting. It’s the language of practical business life. 
• However, double-entry bookkeeping was a hell of an invention. 
• Buy you have to know enough about it to understand its limitations--because although accounting is the starting place, it’s only a crude approximation. And it’s not very hard to understand its limitations. 
• If you always tell people why, they’ll understand it better, they’ll consider it more important, and they'll be more likely to comply. 
• So there’s an iron rule that just as you want to start getting worldly wisdom by asking why, why, why in communicating with other people about everything, you want to include why, why, why. Even if it’s obvious, it’s wise to stick in the why. 
• Which models are the most reliable? Well, obviously, the models that comes from hard science and engineering are the most reliable models on this Earth. And engineering quality control--at least the guts of it that matters to you and me and people who are not professional engineers--is very much based on the elementary mathematics of Fermat and Pascal. 
• And, of course, the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints--that’s a very powerful model, too. The notion of a critical mass--that comes out of physics--is a very powerful model. 
• I suppose the next most reliable models are from biology/physiology because, after all, all of us are programmed by our genetic makeup to be much the same. 
• And then you get into psychology, of course, it gets very much more complicated But it’s an ungodly important subject if you’re going to have any worldly wisdom. 
• And the reason why is that the perceptual apparatus of man has shortcuts in it. The brain cannot have unlimited circuitry. So someone who knows how to take advantage of those shortcuts and cause the brain to miscalculate in certain ways can cause you to see things that aren’t there. 
• The elementary part of psychology--the psychology of misjudgment, as I call it-is a terribly important thing to learn. 
• You never get totally over making silly mistakes. 
• Given enough clever psychological manipulation, what human beings will do is quite interesting. 
• Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. 
• Just doing something complicated in more and more volume enables human beings, who are trying to improve and are motivated by the incentives of capitalism, to do it more and more efficiently. 
• The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume. That’s an enormous advantage. And it has a lot to do with which business succeed and fail. 
• We are all influenced--subconsciously and, to some extent, consciously--by what we see others do and approve. Therefore, if everybody’s buying something, we think it’s better. We don’t like to be the one guy who’s out of step. 
• In some businesses, the very nature of things is to sort of cascade toward the overwhelming dominance of one firm. 
• So occasionally, scaling down and intensifying gives you the big advantage. Bigger is not always better. 
• The constant curse of scale is that it leads to big, dumb bureaucracy--which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn’t mean we don’t need governments--because we do. But it’s a terrible problem to get big bureaucracies to behave. 
• But bureaucracy is terrible… And as things get very powerful and very big, you can get some really dysfunctional behavior. 
• If people tell you what you really don’t want to hear--what’s unpleasant--there’s an almost automatic reaction of antipathy. You have to train yourself out of it. It isn’t predestined that you have to be this way. But you will tend to be this way if you don’t think about it. 
• Well, capitalism is a pretty brutal place. 
• The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. And most people do not get this straight in their heads. 
• The cache register was one of the great contributions to civilization. 
• Every person is going to have a circle of competence. And it’s going to be very hard to enlarge that circle. 
• So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t you’re going to lose. 
• You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence. 
• The iron rule of life is that only twenty percent of the people can be in the top fifth. 
• Well, the efficient market theory is obviously roughly right--meaning that markets are quite efficient and it’s quite hard for anybody to beat the market by significant margins as a stock picker by just being intelligent and working in a disciplined way. 
• As I always say, the iron rule of life is that only twenty percent of the people can be in the top fifth. 
• The model I like--to sort of simplify the notion of what goes on in a market for common stocks--is the pari-mutual system at the race track. If you stop to think about it, a pari-mutual system is a market Everybody goes there and bets, and the odds change based on what’s bet. That’s what happens in the stock market. 
• Pari-mutual System: A system of betting on races in which the winners divide the total amount bet, after deducting management expenses, in proportion to the sums that have wagered individually. 
• It’s not given to human beings to have such talent that they can just know everything about everything all the time. 
• And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple. 
• The way to win is to work, work, work, work, and hope to have a few insights. 
• How many insights do you need? Well, I’d argue that you don’t need many in a lifetime. 
• So what makes sense for the investor is different from what makes sense for the manager. And, as usual in human affairs, what determines the behavior are incentives for the decision maker. 
• As usual in human affairs, what determines the behavior are incentives for the decision maker, and “getting the incentives right” is a very, very important lesson. 
• You’re much more likely to do well if you start out to do something feasible instead of something that isn’t feasible. Isn’t that perfectly obvious? 
• And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times. You’re much more likely to do well if you start out to do something feasible instead of something that isn’t feasible. Isn’t that perfectly obvious? 
• Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. 
• So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects. 
• How do you get into these great companies? One method is what I’d call the method of finding them small--get ‘em when they’re little. 
• However, averaged out, betting on the quality of a business is better than betting on the quality of the management. In other words, if you have to chose one, bet on the business momentum, not the brilliance of the manager. 
• If you sit on your ass for long, long stretches in great companies, you can get a huge edge form nothing but the way incomes taxes work. 
• But in terms of business mistakes that I’ve seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations. 
• Anytime somebody offers you a tax shelter from her on in life, my advice would be don’t buy it. 
• In fact, anytime anybody offers you anything with a big commission and a 200-page prospectus, don’t buy it. 
• There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass: You’re paying less to brokers. You’re listening to less nonsense. And if it works, the governmental tax system gives you an extra one, two, or three, percentage point per annum compounded. 
• I’ve had many friends in the sick-business-fix game over a long lifetime. And they practically all use the following formula--I call it the cancer surgery formula: They look at this mess. And they figure out if there’s anything sound left that can live on its own if they cut away everything else. And if they find anything sound, they just cut away everything else. Of course, if that doesn’t work, they liquidate the business. But it frequently does work.
• On a net basis the whole investment management business together gives no value added to all buyers combined. 
• Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will being to amount to something. THIS IS SUCH A NO-BRAINER. 
• What you need is a latticework of mental models in your head. And you have your actual experience and your vicarious experience (that you get from reading and so forth) on this latticework of powerful models. And, with that system, things gradually get fit together in a way that enhances cognition. 
• Of course, when I urge a multidisciplinary approach--that you’ve got to have the main models from a broad array of disciplines and you’ve got to use them all--I'm really asking you to ignore jurisdictional boundaries. 
• And some of the worst dysfunctions in business come from the fact that they balkanize reality into little individual departments with territoriality and turf protection and so forth. So if you want to be a good thinker, you must develop a mind that can jump the jurisdictional boundaries. 
• You don’t have to know it all. Just take in the best big ideas from all these disciplines. And it’s not that hard to do. 
• Since your academic structure, by and large, doesn’t encourage minds jumping jurisdictional boundaries, you’re at a disadvantage because, in that one sense, even though academia’s very useful to you, you’ve been mistaught. 
• My solution for you is one that I get at a very early age from the nursery: the story of the Little Red Hen. The punchline, of course, is, “‘Then I’ll do it myself,’ said the Little Red Hen”. 
• At any rate, mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It’s called the graph. 
• Compound interest--which is one of the most important models there's is on earth. 
• Of all the models that people ought to have in useful form and don’t perhap the most important lie in the area of psychology… 
• And Pinker says that human language ability is not just learned--it’s deeply buried, to a considerable extent, in the genome. 
• If ideology can screw up the head of Chomsky, imagine what it does to people like you and me. 
• Heavy ideology is one of the most extreme distortions of human cognition. 
• Ideology does some strange things and distorts cognition terribly. If you get a lot of heavy ideology you--and then you start expressing it--you are really locking your brain into a very unfortunate pattern. And you are going to distort your general cognition. 
• Therefore, in a system of multiple models across multiple disciplines, I should add as an extra rule that you should be very ware of heavy ideology. 
• And life is one damn relatedness after another. 
• Either position is ok. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker. 
• No pilot takes off without going through his checklist: A, B, C, D… 
• If something is very important but can’t be perfectly and precisely demonstrated because of ethical constraints, you can’t just treat it like it doesn’t exist. You have to do the best you can with it--with such evidence as is available. 
• There’s only one right way to do it: You have to get the main doctrines together and use them as a checklist. And, to repeat for emphasis, you have to pay special attention to combinatorial effects that create lollapalooza consequences. 
• If you don’t know the right techniques, you can’t use them. 
• Worldly wisdom is mostly very, very simple. And what I’m urging on you is not that hard to do if you have the will to plow through and do it. And the rewards are awesome--absolutely awesome. 
• It can’t be emphasize too much that issues of morality are deeply entwined with worldly wisdom considerations involving psychology. 
• A very significant fraction of the people in the world will steal if (A) it’s very easy to do and (B) there’s practically no chance of being caught. 
• And once they start stealing, the consistency principle--which is a big part of human psychology--will soon combine with operant conditioning to make stealing habitual. 
• It’s very, very important to create human systems that are hard to cheat. 
• Serpico effects: If enough people are profiting in a general social climate of doing wrong, then they'll turn on you and become dangerous enemies if you try and blow the whistle. 
• Powerful psychological forces are at work for evil. 
• So it’s much better to let some things go uncompensated--to let life be hard--than to create systems that are easy to cheat. 
• If you want to change behaviors, you have to change motivations. 
• When people get bad news, they hate the messenger. 
• You must stop slop early. It’s very hard to stop slop and moral failure if you let it run for a while. 
• Not all of what you know how to do should you use to manipulate people. 
• We just look for non-brainer decision. As Buffet and I say over and over again, we don’t keep seven-foot fences. Instead, we look for one-foot fences with big rewards on the other side. So we’ve succeeded by making the world easy for ourselves, not by solving hard problems. 
• If you wait for the big opportunity and have the courage and vigor to grasp it firmly when it arrives, how many do you need? 
• By and large, we’ve chosen people we admire enormously to have the power beneath us. It’s easy for us to get along with them on average because we love and admire them. 
• The advantage of low-tech stuff for us is that we think we understand it fairly well. The other stuff we don’t. And we’d rather deal with what we understand. 
• Why should we want to play a competitive game in a field where we have no advantage--maybe a disadvantage--instead of in a field where we have a clear advantage? 
• Each of you will have to figure out where your talents lie. And you’ll have to use your advantages. But if you try to succeed in what you’re worst at, you’re going to have a very lousy career. 
• I don’t want you to think we have any way of learning or behaving so you won’t make a lot of mistakes. I’m just saying that you can learn to make fewer mistakes than other people--and how to fix your mistakes faster when you do make them. 
• In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke. 
• Part of what you must learn is how to handle mistakes and new facts that change the odds. 
• You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add--and that your best course is to trust some expert. 
• In effect, you’ve got to know what you know and what you don’t know. 
• When you don’t know and you don’t have any special competence, don’t be afraid to say so. 
• Nobody expects you to know everything about everything. 
• As you go through life, sell your services once in awhile to an unreasonable blowhard if that’s what you must do to feed your family. But run your own life like Grant McFayden. 
• Good literature makes the reader reach a little for understanding. Then, it works better. 
• If you’ve reached for it, the idea’s pounded in better. 
• To the extender you become a person who thinks correctly, you can add great value. To the extend you’ve learned it so well that you have enough confidence to intervene where it takes a little courage, you can add great value. And to the extent that you can prevent or stop some asininity that would otherwise destroy your firm, your client, or something that you care about, you can add great value. 
• It’s enormously helpful when you’re serving clients or otherwise trying to persuade someone in a good cause to come up with a little humorous example. 
• Appealing to his interest is likely to work better as a matter of human persuasion than appealing to anything else. That, again, is a powerful psychological principle with deep biological roots. 
• What works best in most cases is to appeal to a man’s interest. 
• People adapt to a changing litigation climate. They have various ways of doing it. That’s how it’s always been and how it’s always going to be. 
• What I personally hate most are systems that make fraud easy. 
• It doesn’t matter why your ship goes aground, your career is over. Nobody’s interested in your fault. It’s just a rule that we happen to have--for the good of all, all effects considered. 
• I like some rules like that. I think that the civilization works better with some of these no-fault rules. 
• Do you have difficult understanding that people are heavily influenced by what other people think and what other people do--and that some of that happens on a subconscious level? 
• Do you have any difficulty with the idea that operant conditioning works--that pee will repeat what worked for them the last time? 
• There are a relatively small number of disciplines and a relatively small number of truly big ideas. 
• Were Charlie to teach a remedial worldly wisdom course for law students, it would no doubt include his fundamental four-discipline combination of math, physics, chemistry, and engineering, as well as accounting, history, psychology, philosophy, statistics, biology, and economics. 
• Hard science and engineering tend to be pretty reliably done. But the minute you get outside of those areas, a certain amount of inanity seems to creep into academia--even [in] academia involving people with very high I.Q.’s. 
• The human mind is not constructed so that it works well without having reason. You’ve got to hang reality on a theoretical structure with reasons. That’s the way it changes together in usable forms so that you’re an effective thinker. 
• Psychology is most powerful when combined with doctrines from other academic departments. 
• Operant conditions can be summarized as follows: “A behavior is followed by a consequence, and the nature of the consequence modifies the organism’s tendency to repeat the behavior in the future.” 
• I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody's that smart. 
• Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest. 
• The first helpful notion is that it is usually best to simplify problems by deciding big “no-brainer” questions first. 
• The second helpful notion mimics Galileo’s conclusion that scientific reality is often revealed only by math as if math was the language of God. 
• Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest. 
• The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted know where he was going to die so that he’d never go there. Indeed, many problems can’t be solved forward. And that is why the great algebraist Carl Jacobi so often said, “Invert, always invert.” 
• The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But her is one extremely important qualification: You must think in a multidisciplinary manner. You must routinely use all the easy-to-learn concepts from the freshman course in every basic subject. 
• The fifth helpful notion is that really big effects, lollapalooza effects, will often come only from large combinations of factors 
• A nation’s currency depreciates with respect to another when its value falls in terms of the other. 
• After all, a competing product, if it is never tried, can’t act as a reward creating a conflicting habit. 
• In Pavlovian conditioning, powerful effects form from mere association. 
• Well, there is that powerful “monkey-see, monkey-do” aspect of human nature that psychologists often call “social proof”. 
• The best way to avoid envy, recognized by Aristotle, is to plainly deserve the success we get. 
• In particular, not enough attention is given to lollapalooza effects coming from combinations of psychological tendencies. 
• In short, academic psychology departments are immensely more important ad useful than other academic departments think. And, at the same time, the psychology departments are immensely worse than most of their inhabitants think. 
• People are often massively irrational in ways predicated by psychology that must be taken into account in microeconomics. 
• No less a figure than Einstein said that one of the four causes of his achievement was self-criticism, ranking right up there alongside curiosity, concentration, and perseverance. 
• In my life there are not many questions I can’t properly deal with using my $40 adding machine and dog-eared compound interest table. 
• When it really matters, as with pilots and surgeons, educational systems employ highly-effective structures. Yet, they don’t employ these same, well-understood structures in other areas of learning that are also important. If superior structures are known and available, why don’t educators more broadly utilize them? What could be more simple? 
• More important, there are frequent, terrible effects in professionals from intertwined subconscious mental tendencies, two of which are exceptionally prone to cause trouble: 
• Incentive-caused bias, a natural cognitive drift toward the conclusion that what is good for the professional is good for the client and the wider civilization; and 
• Man-with-a-hammer tendency, with the name taken from the proverb: “To a man with only a hammer, every problem tends to look pretty much like a nail”. 
• One partial cure for man-with-a-hammer tendency is obvious: If a man has a vast set of skills over multiple disciplines, he, by definition, carries multiple tools and, therefore, will limit bad cognitive effects from man-with-a-hammer tendency. 
• Not ignorance, but ignorance of ignorance is the death of knowledge. 
• His training time is allocated among subjects so as to minimize damage from his later malfunctions; and so what is most important in his performance gets the most training coverage and is raised to the highest fluency levels. 
• First, the concept of “all needed skills” lets us recognize that we don’t have to raise everyone’s skill in celestial mechanics to that of Laplace and also ask everyone to achieve a similar skill level in all other knowledge. Instead, it turns out that the truly big ideas in each discipline, learned only in essences, carry most of the freight. And they are not so numerous, nor are their interactions so complex, that a large and multidisciplinary understanding is impossible for many, given large amounts of talent and time. 
• Soft science should more intensely imitate the fundamental organizing ethos of hard science (defined as the “fundamental four-discipline combination” of math, physics, chemistry, and engineering). 
• Here, as I interpret it, is this fundamental organizing ethos I am talking about: 
• You must both rank and use disciplines in order of fundamentalness. 
• You must, like it or not, master to rested fluency and routinely use the truly essential parts of all four constituents of the fundamental four-discipline combination, with particularly intense attention given to disciplines more fundamental than your own. 
• You may never practice either cross-disciplinary absorptions without attribution or departure from a “principle of economy” that forbids explaining in any other way anything readily explainable from more fundamental material in your own or any other discipline. 
• But when the step (3) approach doesn’t produce much new and useful insight, you should hypothesize and test to establishment new principles, ordinarily by using methods similar to those that created successful old principles. But you may not use any new principle inconsistent with an old one unless you can now prove that the old principle is not true. 
• This simple idea may appear too obvious to be useful, but there is an old two-part rule that often works wonders in business, science, and elsewhere: (1) Take a simple, basic ideas and (2) take it very seriously. 
• Human nature being what is is, most people assume away worries like those I raise. After all, centuries before Christ, Demosthenes noted, “What a man wishes, he will believe”. And in self-appraisals of prospects and talents, it is the norm, as Demosthenes predicted, for people to be ridiculously over-optimistic. 
• Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary. 
• Biological creatures ordinarily prefer effort minimization in routine activities and don’t like removals of long-enjoyed benefits. 
• Smart, hardworking people aren’t exempted from professional disasters from overconfidence. 
• It is, of course, irritating that extra care in thinking is not all good but also introduces extra error. But most good things have undesired “side effects”, and thinking is no exception. The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: “The first principle is that you must not fool yourself, and you’re the easiest person to fool”. 
• Indexing can't work well forever if almost everybody turns to it. But it will work alright for a long time. 
• In the United States, a person or institution with almost all wealth invested long-term, in just three fine domestic corporations, is securely rich. 
• There is no limit to what a man can do or where he can go if he doesn’t mind who gets the credit. 
• And I also think that one should recognize reality even when one doesn’t like it, indeed, especially when one doesn’t like it. 
• You're mistaken professors were too much influenced by “rational man” models of human behavior from economics and too little by “foolish man” models from psychology and real-world experience. “Crowd folly”, the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior-like investment management practices of many foundations represented here today. It is sad that today each institutional investor apparently fears most of all that its investment practices will be different from practice of the rest of the crowd. 
• A rough rule in life is that an organization foolish in one way in dealing with a complex system is all too likely to be foolish in another. 
• Maintenance of easily removable ignorance by a responsible office holder was treacherous malfeasance in meeting moral obligation. 
• “The man who needs a new machine tool and hasn't bought it is already paying for it”. 
• If you don’t have the right thinking tools, you, and the people you seek to help, are already suffering from your easily removable ignorance. 
• It is difficult to get a man to understand something when his salary depends on his not understanding it. 
• However, all man’s desired geometric progression, if a high rate of growth is chosen, at last come to grief on a finite earth. And the social system for man on earth is fair enough, eventually, that almost all massive cheating ends in disgrace. 
• Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof. 
• People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. 
• In any great organization it is far, far safer to be wrong with the majority than to be right alone. 
• If you would persuade, appeal to interest and not to reason. 
• You’ve got to know all the big ideas in all the disciplines more fundamental than your own. You can never make any explanations that can be made in a more fundamental way in any other way than the most fundamental way. 
• Opportunity cost is a superpower, to be used by all people who have any hope of getting the right answer. Also, incentives are superpowers. 
• The only antidote for being an absolute klutz due to the presence of a man-with-a-hammer syndrome is to have a full kit of tools. 
• Well, practically everybody (1) overweights that stuff that can be numbered because it yields to the statistical techniques they’re taught in academia and (2) doesn’t mix in the hard-to-measure stuff that may be more important. 
• I want economics to pick up the basic ethos of hard science, the full attribution habit, but not the craving for an unattainable precision that comes from physics envy. The sort of precise, reliable formula that includes Boltzmann's constant is not going to happen, by and large, in economics. Economics involves too complex a system. And the craving for that physics-style precision does little but get you in terrible trouble, like the poor fool from McKinsey. 
• But once you try to put a lot of false precision into a complex system like economics, the errors can compound to the point where they’re worse than those of the McKinsey partner when he was incompetently advising the Washington Post. 
• My fourth criticism is that there's too much emphasis on macroeconomics and not enough on microeconomics. I think this is wrong. It’s like trying to master medicine without knowing anatomy and chemistry. 
• And I suggest that you people should also learn to do microeconomics better. 
• Extreme success is likely to be caused by some combination of the following factors: 
• Extreme maximization or minimization of one or two variables. 
• Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little bit more mass, and you get a lollapalooza result. 
• An extremum of good performance over many factors. 
• Catching and riding some sort of big wave. 
• Generally I recommend and use in problem solving cut-to-the quick algorithms, and I find you have to use them both forward and backward. 
• My fifth criticism is there is too little synthesis in economics, not only with matter outside traditional economics, but also within economics. 
• Luxury goods: Raising the price can improve the product’s utility as a “show-off” item, sometimes increasing sales. Purchasers may also assume that a higher price equates to a better product. 
• The tenth defect is what I call “Not Enough Attention to the Effects of Embedded Ponzi schemes at the Microeconomic Level”. This is easily demonstrated by the unfunded pension plans at the major law firms where a clear an enormous potential future impact goes unnoticed--and blissfully ignored. 
• Alright, I’m down to the sixth main defect, and this is a subdivision of the lack of adequate multidisciplinarity: extreme and counterproductive psychological ignorance in economics. 
• If you know the psychological factors, if you’ve got them on a checklist in your head, you just run down the factors, and, boom! You get to one that must explain this occurrence. There isn’t any other way to do it effectively. These answers are not going to come to people who don’t learn these problem-solving methods. If you want to go through life like a one-legged man in an ass-kicking contest, why, by my guest. But if you want to succeed like a strong man with two legs, you have to pick up these methods, including doing micro- and macro-economics while knowing psychology. 
• Here, I want to give you an extreme injunction. This is even tougher than the fundamental organizing ethos of hard science. This has been attributed to Samuel Johnson. He said, in substance, stat if an academic maintained in place an ignorance that can be easily removed with a little work, the conduct of the academic amounts to treachery. That was his word, “treachery”. 
• On to the next one, the seventh defect: too little attention in economics to second-order and even higher-order effects. This defect is quite understandable because the consequences have consequences, and the consequences of the consequences have consequences, and so on. It gets very complicated. 
• I think the schools are doing a lousy job. 
• It’s an effective sales techniques in America to put a foolish protection on a desk. 
• The movement of any individual piece on the board affects, sometimes dramatically the overall composition of the game. 
• Anyway, as the Medicare example showed, all human systems are gamed, for reasons rooted deeply in psychology, and great skill is displayed in the gaming because game theory has so much potential. 
• Gaming has been raised to an art form. In the course of gaming the system, people learn to be crooked. Is this good for civilization? Is it good for economic performance? Hell, no. There people who design easily gameable systems belong in the last circle of hell. 
• They just don’t think about what terrible things they’re doing to the civilization because they don’t take into account the second-order effects and the third-order effects in lying and cheating. 
• Okay, I’m not down to my eight objection: too little attention within economics to the simplest and most fundamental principle of algebra. 
• I say that economics doesn’t pay enough attention to the concept of embezzlement. 
• By the way, Galbraith invented the world “bezel” to describe the amount of undisclosed embezzlement, so I invented the world “embezzlement”: the functional equivalent of embezzlement. 
• Okay, my ninth objection: not enough attention to virtue and vice effects in economics. It has been plain to me since early life that there are enormous virtue effects in economics and also enormous vice effects. But economists get very uncomfortable when you talk about virtue and vice. It doesn’t lend itself to a lot of columns of numbers. 
• A system that’s very hard to defraud, like a cash register-based system, helps the economic performance of a civilization by reducing vice, but very few people within economics talk about it in those terms. 
• I say economic systems work better when there’s an extreme reliability ethos. And the traditional way to get a reliability ethos,, at least in past generations in America, was through religion. The religions instilled the guilt. 
• Many bad effects from vice are clear. 
• And, by the way, everybody’s angry about unfair compensation at the top of American corporations, and people should be. We now face various crazy government nostrums invented by lawyers and professors that won’t give us a fix for unfair compensations, yet a good partial solution is obvious: If directors were significant shareholders who got a pay of zero, you'd be amazed what would happen to unfair compensation of corporate executives as we damped effects from reciprocity tendency. 
• In one section of the book, Pacioli described a novel concept, double entry accounting. This invention revolutionized business practice and made Pacioli a celebrity. 
• It is not always recognized that, to function best, morality should sometimes appear unfair, like most worldly outcomes. The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. Thus, there can be virtue in apparent unfairness. 
• Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you. 
• There are, of course, enormous vice effects in economics. You have these bubbles with so much fraud and folly. The aftermath is frequently very unpleasant, and we’ve had some of that lately. 
• Well, if the mathematicians can’t get the paradox out of their system when they’re creating it themselves, the poor economists are never going to get rid of paradoxes, nor are any of the rest of us. It doesn’t matter. Life is interesting with some paradox. 
• Keynes said, “It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.” 
• If you can get really good at destroying your own wrong ideas, that is a great gift. 
• Well, it’s time to repeat the big lesson in this little talk. What I’ve urged is the use of a bigger multidisciplinary bag of tricks, mastered to fluency, to help economics and everything else. And I also urged that people not be discouraged by irremovable complexity and paradox. It just adds more fun to the problems. My inspiration again is Kanye's: Better roughly right than precisely wrong. 
• If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands. 
• Of what use is a philosopher who never offends anybody? 
• I was greatly helped in my quest by two turns of mind. First, I had long looked for insight by inversion in the intense manner counseled by the great algebraist, Jacobi: “Invert, always invert.” I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes. Second, I became so avid a collector of instances of bad judgment that I paid no attention to boundaries between professional territories. After all, why should I search for some tiny, unimportant, hard-to-find new stupidity in my own field when some large, important easy-to-find stupidity as just over the fence in the other fellow’s professional territory? Besides, I could already see that real-world problems didn’t neatly lie within territorial boundaries. They jumped right across. And I was dubious of any approach that, when two things were inextricably intertwined and interconnected, would try and think about one thing but not the other. 
• Psychological tendencies tend to be both numerous and inseparably intertwined, now and forever, as they interplay in life. 
• The perception system of man clearly demonstrates just such an unfortunate outcome. Man is easily fooled, either by the cleverly thought out manipulation of man, by circumstances occurring by accident, or by very effective manipulation practices that man has stumbled into during “practice evolution” and kept in place because they work so well. One such outcome is caused by a quantum effect in human perception If stimulus is kept below a certain level, it doesn't get through. 
• Man’s--often wrong but generally useful--psychological tendencies are quite numerous and quite different. The natural consequence of this profusion of tendencies is the grand general principle of social psychology: cognition is ordinarily situation-dependent so that different situations often cause different conclusions, even when the same person is thinking in the same general subject area. 
• We should also heed the general lesson implicit in the injection of Ben Franklin in Poor Richard’s Almanack: “If you would persuade, appeal to interest and not to reason”. This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives. 
• Perhaps the most important rule in management is “Get the incentives right”. 
• He demonstrated again and again a great recurring, generalized behavioral algorithm in nature: “Repeat behavior that works”. He also demonstrated that prompt rewards worked much better than delayed rewards in changing and maintaining behavior. 
• Man-with-a hammer tendency does not exempt smart people like Blanchard and Skinner. And it won’t exempt you if you don’t watch out. 
• 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 facilities by rationalizing his bad behavior, like the salesmen at Xerox who harmed customers in order to maximize their sales commissions. 
• In my long life, I have never seen a management consultant’s report that didn’t end with the same advice: “This problem needs more management consulting services”. Widespread incentive-cause bias requires that one should often distrust, or take with a grain of salt, the advice of one’s professional advisor, even if he is an engineer. The general antidotes here are: (1) especially fear professional advice when it is especially good for the advisor; (2) learn and use the basic elements of your advisor's trade as you deal with your advisor; and (3) double check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought. 
• People who create things like cash registers, which make dishonest behavior hard to accomplish, are some of the effective saints of our civilization. 
• Bad behavior is intensely habit-forming when it is rewarded. 
• The strong tendency of employees to rationalize bad conduct in order to get rewards requires many antidotes in addition to the good cash control promoted by Patterson. Perhaps the most important of these antidotes is use of sound accounting theory and practice. 
• And so incentive-caused bias is a huge, important thing, with highly important antidotes, like the cash register and a sound accounting system. 
• In the end, I concluded that when something was obvious in life but not easily demonstrable in certain kinds of easy-to-do, repeatable academic experiments, the truffle hounds of psychology very often missed it. 
• A sales force living only on commissions will be much harder to keep moral than one under less pressure from the compensation arrangement. On the other hand, a purely commissioned sales force may well be more efficient per dollar spent. Therefore, difficult decision involving trade-offs are common in creating compensation arrangements in the sales function. 
• Most capitalist owners in a vast web of free-market economic activity are selected for ability by surviving in a brutal competition with other owners and have a strong incentive to prevent all waste in operations within their ownership. After all, they live on the difference between their competitive prices and their overall costs and their businesses will perish if costs exceed sales. 
• Another generalized consequence of incentive-caused bias is that man tends to “game” all human systems, often displayed great ingenuity in wrongly serving himself at the expense of others. Anti-gaming features, therefore, constitute a huge and necessary part of almost all system design. 
• Dread, and avoid as much as you can, rewarding people for what can be easily faked. 
• Of course, money is now the main reward that drives habits. 
• Although money is the main driver among rewards, it is not the only reward that works. People also change their behavior and cognition for sex, friendship, companionship, advancement in status, and other non monetary items. 
• Granny’s Rule, to be specific, is the requirement that children eat their carrots before they get dessert. And the business version requires that executives force themselves daily to first do their unpleasant tasks before rewarding themselves by proceeding to their pleasant tasks. 
• Punishments, of course, also strongly influence behavior and cognition, although not so flexibly and wonderfully as rewards. 
• One very practical consequence of Liking/Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend (1) to ignore faults of, and comply with wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection, and (3) to distort other facts to facilitate love. 
• The phenomenon of liking and loving causing admiration also works in reverse. Admiration also causes or intensifies liking or loving. 
• The long history of man contains almost continuous war. 
• Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to (1) ignore virtues in the object of dis;like, (2) dislike people, products, and actions merely associated with the object of his dislike, and (3) distort other facts to facilitate hatred. 
• The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. 
• Doubt-Avoidance Tendency is some combination of (1) puzzlement and (2) stress. 
• The brain of man conserves programming space be being reluctant to change, which is a form of inconsistency avoidance. 
• The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. 
• Also tending to be maintained in place by the anti-change tendency of the brain are one’s previous conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc. 
• And so, people tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often re examined or changed, even though there is plenty of good evidence that they are wrong. 
• Planck is famous not only for his science but also for saying that even in physics the radically new ideas are seldom really accepted by the old guard. Instead, said Planck, the progress is made by a new generation that comes along, less brain-blocked by its previous conclusions. 
• Inconsistency-Avoidance Tendency has many good effects in civilization. For instance, rather than act inconsistently with public commitments, new or old public identities, etc., most people are more loyal in their roles in life as priests, physicians, citizens, soldiers, spouses, teachers, employees, etc. 
• One corollary of Inconsistency-Avoidance Tendency is that a person making big sacrifices in the course of assuming a new identity will intensify his devotion to the new identity. 
• And thus civilization has invented many tough and solemn initiation ceremonies, often public in nature, that intensify new commitments made. 
• So strong is Inconsistency-Avoidance Tendency that it will often prevail after one has merely pretended to have some identity, habit, or conclusion. 
• It is important not to thus put one’s brain in chains before one has come anywhere near his full potentiality as a rational person. 
• In advanced human civilization, culture greatly increases the effectiveness of curiosity in advancing knowledge. 
• Curiosity, enhanced by the best of modern education (which is by definition a minority part in many places), much helps man to prevent or reduce bad consequences arising from other psychological tendencies. 
• Kant was famous for his “categorical imperative”, a sort of “golden rule” that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody. And it is not too much to say that modern acculturated man displayed, and expects from others, a lot of fairness as thus defined by Kant. 
• As I have shared the observation of life with Warren Buffett over decades, I have hard him wisely say on several occasions: “It is not greed that drives the world, but envy”. 
• The autonomic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme, as it is in apes, monkeys, dogs and many less cognitively gifted animals. The tendency clearly facilities group cooperation for the benefit of members. In this respect, it mimics much genetic programming of the social insects. 
• The standard antidote to one’s overactive hostility is to train oneself to defer reaction. 
• Wise employers, therefore, try to oppose reciprocate-favor tendencies of employees engaged in purchasing. The simplest antidote works best: Don’t let them accept any favors from vendors. 
• Reciprocations Tendency subtly causes many extreme and dangerous consequences, not just on rare occasions but pretty much all the time. 
• Some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or ones disliking and hating, which includes a natural hatred for bad news. 
• The proper antidotes to being made such a patsy by past successes are (1) to carefully examine each past success, looking for accidental, non-causative factors associated with such success that will tend to mislead as one appraises woods implicit in a proposed new undertaking and (2) to look for dangerous aspects of the new undertaking that were not present when past success occurred. 
• See it like it is and love anyway. 
• It is actually dangerous in many careers to be a carrier of unwelcome news. 
• The proper antidote to creating Persian Messenger Syndrome and its bad effects, like those at CBS, is to develop, through exercise of will, a habit of welcoming bad news. At Berkshire, there is a common injunction: “Always tell us the bad news promptly. It is only the good news that can wait.” 
• The reality is too painful to bear, so one distorts the facts until they become bearable. We all do that to some extent, often causing terrible problems. There tendencies most extreme outcomes are usually mixed up with love, death, and chemical dependency. 
• One should stay far away from any conduct at all likely to drift into chemical dependence. Even a small chance of suffering so great a damage should be avoided. 
• We all commonly observe the excessive self-regard of man. He mostly surprises himself on the high side, like the ninety percent of Swedish drivers that judge themselves to be above average. Such misappraisal also apply to a person's major “possessions”. 
• Even man’s minor possessions tend to be reappraised. Once owned, they suddenly become worth more to him than he would pay if they were offered for sale to him and he didn’t already own them. 
• Man’s excess of self-regard typically makes him strongly prefer people like himself. 
• Because man is likely to be over influenced by face-to-face impressions that by definition involve his active participation, a job candidate who is a marvelous “presenter” often causes great danger under modern executive-search practice. 
• According to Tolstoy, the worst criminals don’t appraise themselves as all that bad. They come to believe either (1) that they didn’t commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became. 
• Because a majority of mankind will try to get along by making way too many unreasonable excuses for fixable poor performance, it is very important to have personal and institutional antidotes limiting the ravages of such folly. On the personal level a man should try to face the two simple facts: (1) fixable but unfixed performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance, and (2) in demanding places, like athletic teams and General Electric, you are almost sure to be discarded in due course if you keep giving excuses instead of behaving as you should. The main institutional antidotes to this part of the “Tolstoy effect” are (1) a fair, meritocratic, demanding culture plus personnel handling methods that build up moral and (2) severance of the worst offenders. 
• The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity. 
• While an excess of self-regard is often counter-productive in its effects on cognition, it can cause some weird successes from overconfidence that happens to cause success. This factor accounts for the adage: “Never underestimate the man who overestimates himself”. 
• Moreover, the trustworthy man, even after allowing for the inconveniences of his chosen course, ordinarily has a life that averages out better than the would have if he provided less reliability. 
• One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal, taught in my youth to high school sophomores. The mental rules of thumb that evolution gives you to deal with risk are not adequate. 
• The quantity of man’s pleasure from a ten dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss. That is, the loss seems to hurt much more than the gain seems to help. 
• A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominate priority, opportunity, status, or any other valued thing. 
• Deprival-Superraction Tendency often protects ideological or religious views by triggering dislike and hatred directed toward vocal non believers. 
• When the vocal critic is a former believer, hostility is often boosted both by (1) a concept of betrayal that triggers additional Deprival-Superreaction Tendency because a colleague is lost and (2) fears that conflicting views will have extra persuasive power when they come from a former colleague. 
• The teaching value of poker demonstrates that not all effective teaching occurs on a standard academic path. 
• The otherwise complex behavior of man is much simplified when he automatically thinks and does what he observes to be though and down around him. 
• For some such reason, man’s evolution left him with Social-Proof Tendency, an automatic tendency to think and act as he sees others around him thinking and acting. 
• When will Social-Proof Tendency be most easily triggered? Here the answer is clear from many experiments: Triggering most readily occurs in the presence of puzzlement or stress, and particularly when both exist. 
• Because both bad and good behavior are made contagious by Social-Proof Tendency, it is highly important that human societies (1) stop any bad behavior before it spreads and (2) foster and display all good behavior. 
• The Serpico story should be taught more than it now is because the didactic power of its horror is aimed at a very important evil, driven substantially by a very important force: social proof. 
• In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course. 
• If only one lesson is to be chosen from a package of lessons involving Social-Proof Tendency, and used in self improvement, my favorite would be: Learn how to ignore the examples from others when they are wrong, because few skills are more worth having. 
• Because the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other other senses. Moreover, as perception goes, so goes cognition. The result is man’s Contrast-Mis Reaction Tendency. 
• Contrast-Mis Reaction Tendency is routinely used to cause disadvantage of customers buying merchandise and services. To make an ordinary price seem low, the vendor will very frequently create a highly artificial price that is much higher than the price always sought, then advertise his standard price as a big reduction from his phony price. 
• Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny. 
• One of Ben Franklin's best-remembered and most useful aphorism is “A small leak will sink a great ship”. The utility of the aphorism is large precisely because the brain so often misses the functional equivalent of a small leak in a great ship. 
• In a phenomena less well recognized but still widely known, light stress can slightly improve performance--say, in examinations--where's heavy stress causes dysfunction. 
• He [Pavlov] found (1) that he could classify dogs so as to predict how easily a particular dog would breakdown; (2) that the dogs hardest to break down were also the hardest to return to their pre-breakdown state; (3) that any dog could be broken down; and (4) that he couldn’t reverse a breakdown except by re imposing stress. 
• Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. 
• The main antidote to miscues from Availability-Mis Weighing Tendency often involve procedures, including use of checklists, which are almost always helpful. 
• Still, the special strength of extra-vivid images in influencing the mind can be constructively used (1) in persuading someone else to reach a correct conclusion or (2) as a device for improving one’s own memory by attaching vivid images, one after the other, too many items one doesn’t want to forget. 
• The great algorithm to remember in dealing with this tendency is simple: An idea or a fact is not worth more merely because it is easily available to you. 
• All skills attenuate with disuse. 
• The right antidote to such a loss is to make use of the functional equivalent of the aircraft simulator employer in pilot training. This allows a pilot to continuously practice all of the rarely used skills that he can’t afford to lose. 
• Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and , therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency. His learning capacity will also shrink as he creates gaps in the latticework of theory he needs a framework for understanding new experience. It is also essential for a thinking man to assemble his skills into a checklist that he routinely uses. Any other mode of operation will cause him to miss much that is important. 
• Skills of a very high order can be maintained only with daily practice. 
• If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come back faster when refreshed with new learning. These are not minor advantages, and a wise man engaged in learning some important skill will not stop until he is really fluent in it. 
• With advanced age, there comes a natural cognitive decay, differing among individuals in the earliness of its arrival and the speed of this progression. Practically no one is good at learning complex new skills when very old. But some people remain pretty good in maintaining intensely practiced old skills until late in life, as one can notice in many a bridge tournament. 
• Continuous thinking and learning, down with joy, can somewhat help delay what is inevitable. 
• Living in dominance hierarchies as he does like all his ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading. And so, human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of man. 
• Be careful whom you appoint to power because a dominant authority figure will often be hard to remove, aided as he will be by Authority-Mis Influence Tendency. 
• And it’s a very important part of wise administration to keep prattling people, pouring out twaddle, for away from the serious work. 
• “The principle job of an academic administration is to keep the people who don’t matter from interfering with the work of the people that do.” 
• There is in man, particularly one in an advanced culture, a natural love of accurate cognition and a joy in its exercise. This accounts for the widespread popularity of crossword puzzles, other puzzles, and bridge and chess columns, as well as all games requiring mental skill. This tendency has an obvious implication. It makes man especially prone to learn well when a would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired believe ex cathedra with no reasons given. Few practices, therefore, are wiser than not only thinking through reasons before giving orders b also communicating these reasons to the recipient of the order. 
• He had a very simple rule, one of many in his large, Teutonic company: You had to tell Who was to do What, Where, When, and Why. 
• In general, learning is most easily assimilated and used when, lifelong, people consistently hang their experience, actual and vicarious, on a latticework of theory answering the question: Why? Indeed, the question “Why?” is a sort of Rosetta stone opening up the major potentiality of mental life. 
• Unfortunately, Reason-Respecting Tendency is so strong that even a person’s giving of meanings or incorrect reasons will increase compliance with his orders and requests. 
• But ordinarily, when you try to use your knowledge of psychological tendencies in the artful manipulation of someone whose trust you need, you will be making both a moral and prudential error. 
• I hope that more psychology professors will join me in : (1) making heavy use of inversion; (2) driving for a complete description of the psychological system so that it works better as a checklist; and (3) especially emphasizing effects from combinations of psychological tendencies.