Charlie Munger Quotes

When people think of the outcomes of their decisions, they think much more short term than that. They think in terms of gains and losses.

We tend to ignore the high probability of small gains or losses and focus on big payoffs or disaster despite remote odds.

The lesson of my field, behavioral economics, is that we need to understand the ways in which we differ from the rational human assumed in standard economic theory.

People react differently to hearing 'Procedure X has a 70 percent chance of survival' and 'Procedure Y has a 30 percent chance of death.' Phrased that way, people flock to Procedure X, even though the numbers are the same.

The concept of loss aversion is certainly the most significant contribution of psychology to behavioral economics.

Loss aversion is a really disproportionate anxiety about stuff that doesn't matter very much. So for instance, if you lose $5, you feel really bad about the $5 you've lost. You're cursing yourself. You're going through it again and again. If, on the other hand, you find $5, you go - hey, great, five bucks. And you've forgotten about it really quickly.

The systematic experimental study of reproducible errors of human reasoning, and what these errors reveal about underlying mental processes, is known as the heuristics and biases program in cognitive psychology. This program has made discoveries highly relevant to assessors of global catastrophic risks.

We historians are increasingly using experimental psychology to understand the way we act. It is becoming very clear that our ability to evaluate risk is hedged by all sorts of cognitive biases. It's a miracle that we get anything right.

I practice what has come to be called behavioral economics.

The perception of potential threats to survival may be much more important in determining behavior than the perceptions of potential profits, so that profit maximization is not really the driving force. It is fear of loss rather than hope of gain that limits our behavior.

Decision-making is difficult because, by its nature, it involves uncertainty. If there was no uncertainty, decisions would be easy! The uncertainty exists because we don't know the future, we don't know if the decision we make will lead to the best possible outcome. Cognitive science has taught us that relying on our gut or intuition often leads to bad decisions, particularly in cases where statistical information is available. Our guts and our brains didn't evolve to deal with probabilistic thinking.

You are 100% emotional in everything you think, feel and decide. You decide emotionally and justify logically.

I like to think that since I was about 19, I have studied human decision-making and problem-solving.

Humans have a tendency towards short-term thinking.

There is much evidence that people are not rational, in the economist’s sense; nor do they take into account expectation, in the precise interpretation of that word. As a result, economic theory often does not correspond with what happens in the market. Some would argue that we need descriptive economics. I would argue that all should be taught about probability, utility, and MEU (maximization of expected utility) and act accordingly.

The sad truth is that many behavioral economists know very little about psychology.

Behavioral economics offers a plausible explanation for overreactions by the market. For example, a long period of bad performance can lead to stereotyping.

Sunk costs? We pay too much attention to them.

I try to teach people to make fewer mistakes. But in designing economic policies, we need to take full account of the fact that people are busy, they're absent minded, they're lazy, and that we should try to make things as easy for them as possible.

I love Richard Thaler's 'Quasi Rational Economics.' A collection of some of his most interesting and inventive essays, the real foundation of behavioral economics.

In the world of traditional economics, it shouldn't matter whether you use an opt-in or opt-out system. So long as the costs of registering as a donor or a nondonor are low, the results should be similar. But many findings of behavioral economics show that tiny disparities in such rules can make a big difference.

Early in my doctoral training at Cornell University, I became immersed in the behavioral decision theory paradigm.

Some people feel affronted when something they thought to be true doesn't happen. If that's the case, then your sense of risk is much higher, and that leads to risk aversion. You need to be able to be comfortable in uncertainty.

The ability to calibrate risk doesn't happen rationally.

Humans are hard-wired to be irrational when it comes to financial decisions. We must understand that so we don't become the sucker at the poker table.