Multidisciplinary approach#
The book has an overarching emphasis on the value of obtaining ’elementary worldly wisdom’ through an approach of synthesizing the main ideas of the major academic disciplines and approaching problems using a mental check list of these ideas.
Charlie reccomends beginning with the most fundamental ideas, and branching outwards. The aim create a relational database or ’latticework’ of ideas and mental models from which you can solve problems. An example would be to start with the major ideas of physics, maths, chemistry and engineering. And then branch out into ideas from softer sciences such as economics, biology, psychology and see how these relate and crossover.
Charlie says it is pointless to go through life specialising in the ideas of only one discipline if you want to solve real world problems. He laments the academic approach of oversimplification by incorrect assumption and quotes Einstein throughout the book; ‘Everything should be as simple as it can be, but no simpler’.
Some examples of ideas Charlie references throughout the book:
- Jacobi principle of inversion - Algebra
- Psychology of human misjudgement - Psychology
- Hardin’s tragedy of the commons - Ecology
- Elementary Probability
- Game theory - Mathematics
- Ricardo’s principle of comparative advantage in trade - Economics
Charlie notes that is important to attribute these ideas where possible, as it is easier to retain the information that way - something that I can personally attest to. He compares not attributing ideas to the knowledge from which they came to running a business with a sloppy filing system.
Lollapalooza effect#
The combinatorial effect of many factors all conspiring toward a particular outcome is much greater than the sum of effects of each individual factor alone. Lollapaloozas are indiscriminate of positive or negative outcomes, so be wary.
The Psychology of Human Misjudgement#
This is a pseudo-talk (one that was never actually delivered to an audience) that might just be Charlie’s magnum opus. 25 psychological tendencies common to man that can cause misjudgement. Here they are (checklist style) in brief:
- Reward and punishment super-response tendency: People are driven by incentives, be that reward driven or punishment driven (although rewards are much more effective). Incentives are the most powerful influence on human behaviour, and it will serve you well to remain cognisant of the incentives underlying all actions. Man’s self serving bias is extreme, special care should be taken when designing systems, employ “anti-gaming” measures where possible. You can “hack” your brain by employing “Granny’s Rule” - you should eat your carrots before dessert.
"If you would persuade, appeal to interest, not to reason"
- Benjamin Franklin
Liking/Loving tendency: We humans are social creatures, we love to be loved. Liking a person causes us to see faults in their arguments or character less readily - think the personal incredulity fallacy. We also tend to want to assimilate with our peers, and will therefore favour people, products, or actions associated with the objects of our affections. This tendency can be of great benefit if the right role models are in place - think Charlie and Ben Franklin.
Disliking/Hating tendency: Insomuch as man is born to love, he has equal propensity to hate. We distort facts to fit our own personal ideologies and narratives, and these distortions can make resolutions between feuding parties impossible. This is the mirror of the liking/loving tendency.
"Politics is the art of marshalling hatreds"
Doubt-Avoidance tendency: We have a tendency to make irrational decisions to serve the avoidance of doubt, something that we find repulsive. Snap decisions can be made out of puzzlement or stress and can have significant negative outcomes. This is why it is mandated that judges and jurors have time to deliberate. Charlie surmises that this tendency has a big part to play in the religious affinities of man, as they require a big leap of faith.
Inconsistency-Avoidance tendency: Congruent with the avoidance of doubt, the brain of a man is very averse to change. This is especially obvious with “bad habits” which have been entrenched over a long time horizon, and are therefore extremely difficult to break. The lollapalooza effect of the doubt-avoidance tendency causing irrational decisions, and the reluctance to change them due to the inconsistency avoidance tendency leads to many errors in human cognition. Darwin was acutely aware of this “first conclusion bias”, training himself early to intensely consider any evidence disconfirming his hypotheses - the result was the theory of evolution.
This tendency maintains:
- Previous conclusions
- Human loyalties
- Reputational identity
- Commitments
- Accepted roles in a civilisation
Clearly this tendency can result in many great benefits for the individual, and society, if we harness it in the right way.
Curiosity tendency: Curiosity can advance your knowledge and insulate you from the negative consequences of the other psychological tendencies. Remain curious, become a life-long learner, and you be rewarded with much fun and wisdom.
Kantian Fairness Tendency: People have a tendency to want to act in a way that, if everyone else also acted in this manner, would make the system work best for everybody.
This tendency is attributed to the very British phenomenon of respecting a queue, and reacting with hostility to those who do not. Essentially it’s a tendency to ’treat others as you wish to be treated'.
Envy/Jealousy Tendency:
This tendency triggers hatred, and causes much injury in the world. It is so pervasive in modern life, just look at the envy regarding differing salaries for co-workers. This has caused many law firms to pay all partners equally - even if they contribute to firm welfare in vastly differing degrees.
"It is not greed that drives the world, but envy"
- Warren Buffet
Reciprocation Tendency: We tend to reciprocate both favours and disfavours in the extreme. The tendency to reciprocate favour is very intense, and often over corrective. As such many businesses have strict guidance on accepting gifts. Sam Walton of Walmart, who was acutely aware of the risks, urged his employees to accept “not even a hotdog from a vendor”. This effect is compounded by the Liking/Loving tendency.
On the other hand we tend to generate overactive hostility to disfavours - road rage for example. The standard antidote to this is to defer reaction.
"You can always tell the man off tomorrow, it is such a good idea"
- Tom Murphy
- Influence-from-mere-association Tendency: People use judgemental heuristics to make a snap determination of a person or product based on mere association. You will never see Coke advertised alongside some account of a dying child, their advertising pictures life rather as happier than reality.
Do not automatically associate successes with certain facts. Assess the underlying causality of successes, and if certain facts have nothing to do with the cause then view them as such. For example, the problem gambler who associates an early success at the roulette wheel with an innate skill - driving himself into ruin. He is a fool, not a soothsayer.
Charlie tells us to think of Napoleon and Hitler attempting to invade Russia after having successes elsewhere. For situations that appear similar to those for which we have previous successes, we should consider increased threats with much scrutiny as they may jeopardise our chances.
Simple, pain-avoiding psychological denial: Errors in cognition engendered by situations that are too painful to bear, particularly concerning love, death, or chemical dependency.
Excessive self-regard Tendency: People appraise themselves more highly than reality. 90% of respondents in a Swedish study where drivers were asked to rate their own driving ability rated themselves above average.
A man even assesses his own minor possessions with higher regard - this is known as the endowment effect. This include conclusions or ideology he subscribes to, leading people to die on the hill of their most favoured ideas often to great detriment.
The antidote to this is metacognition, specifically knowing your own limits. Charlie and Warren talk about remaining firmly within their circle of competence when it comes to investing - but this extends to judgement calls of many kinds.