However, he never forgot the sound principles taught by his grandfather: to concentrate on the task immediately in front of him and to control spending.

I am a biography nut 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 of the people who developed them.

To Charlie, successful investing is simply a by-product of his carefully organized and focused approach to life. Warren Buffett once said, “Charlie can analyze and evaluate any kind of deal faster and more accurately than any man alive.

Charlie’s “big ideas from the big disciplines” approach to investment evaluation is certainly unique in the business world—as is its origin.

Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles.

“All I want to know is where I’m going to die, so I’ll never go there”

Charlie gains enormous advantage by summarily eliminating the unpromising portions of the chessboard, freeing his time and attention for the more productive regions. Charlie strives to reduce complex situations to their most basic, unemotional fundamentals.

“Quickly eliminate the big universe of what not to do; follow up with a fluent, multidisciplinary attack on what remains; then act decisively when, and only when, the right circumstances appear.”

“a great business at a fair price is superior to a fair business at a great price.”

While poor outcomes are excusable in the Munger–Buffett world—given the fact that some outcomes are outside of their control—sloppy preparation and decision-making are never excusable because they are controllable.

how the laws of thermodynamics intersect with laws of economics (for instance, how paper and petroleum become a newspaper delivered to a front door); psychological tendencies and incentives (notably the extreme behavioral pressures they create, both good and bad); and fundamental sustainability over time (the constant and often deadly interplay between positive factors such as moats and the ravages of competitive destruction).

Mimicking the herd invites regression to the mean (merely average performance).

More important than the will to win is the will to prepare. Develop fluency in mental models from the major academic disciplines. If you want to get smart, the question you have to keep asking is “Why, why, why?”

Above all, never fool yourself, and remember that you are the easiest person to fool.

“Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily.

Be alert for the arrival of luck. Enjoy the process along with the proceeds, because the process is where you live.

Opportunity meeting the prepared mind—that’s the game.

“constant search for better methods of thought,”

Preparation. Discipline. Patience. Decisiveness.

Carson’s prescription for sure misery included: Ingesting chemicals in an effort to alter mood or perception Envy Resentment

Darwin’s result was due in large measure to his working method,

he always gave priority attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had.

The life of Darwin demonstrates how a turtle may outrun a hare, aided by extreme objectivity, which helps the objective person end up like the only player without a blindfold in a game of pin the tail on the donkey.

1) reliability is essential for progress in life and 2) while quantum mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost anyone.

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 hang 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.

And the great useful model, after compound interest, is the elementary math of permutations and combinations.

By and large, as it works out, people can’t naturally and automatically do this. If you understand elementary psychology, the reason they can’t is really quite simple: The basic neural network of the brain is there through broad genetic and cultural evolution. And it’s not Fermat/ Pascal. It uses a very crude, shortcut type of approximation. It’s got elements of Fermat/ Pascal in it. However, it’s not good. So you have to learn in a very usable way this very elementary math and use it routinely in life—

decision trees and the elementary math of permutations and combinations.

His rule for all the Braun Company’s communications was called the five Ws: You had to tell who was going to do what, where, when, and why.

It costs so much, and you get so much less likelihood of it breaking if you spend this much. It’s all elementary high school mathematics.

enough. But you have to understand that bell shaped curve at least roughly as well as I do.

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.

Now you get into the cognitive function as distinguished from the perceptual function. And there, you are equally—more than equally, in fact—likely to be misled.

patsy. And so, just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations. And this knowledge, by the way, can be used to control and motivate other people.

The elementary part of psychology—the psychology of misjudgment, as I call it—is a terribly important thing to learn. There are about 20 little principles. And they interact, so it gets slightly complicated.

Pascal said, “The mind of man at one and the same time is both the glory and the shame of the universe.” And that’s exactly right. It has this enormous power. However, it also has these standard misfunctions that often cause it to reach wrong conclusions.

Personally, I’ve gotten so that I now use a kind of two track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain, at a subconscious level, is automatically doing these things—which, by and large, are useful but which often misfunction?

Just as animals flourish in niches, people who specialize in the business world—and get very good because they specialize—frequently find good economics that they wouldn’t get any other way.

And once we get into microeconomics, we get into the concept of advantages of scale. Now we’re getting closer to investment analysis, because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.

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 businesses succeed and fail.

There are all kinds of things like that where the simple geometry—the simple reality—gives you an advantage of scale. For example, you can get advantages of scale from TV advertising. When TV advertising first arrived—when talking color pictures first came into our living rooms—it was an unbelievably powerful thing.

In effect, if you didn’t have a big volume, you couldn’t use network TV advertising, which was the most effective technique.

And your advantage of scale can be an informational advantage.

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.

The social proof phenomenon, which comes right out of psychology, gives huge advantages to scale—for example, with very wide distribution, which of course is hard to get. One advantage of Coca Cola is that it’s available almost everywhere in the world.

Motocross is a total necessity to those people. And its profit margins would make you salivate. Just think of how narrowcast that kind of publishing is. So occasionally, scaling down and intensifying gives you the big advantage.

Just think about it. The concept of a chain store was a fascinating invention: You get this huge purchasing power, which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments.

The reverse is demonstrated by the little store where one guy is doing all the buying. It’s like the old story about the little store with salt all over its walls. A stranger comes in and says to the store owner, “You must sell a lot of salt.” And he replies, “No, I don’t. But you should see the guy who sells me salt.”

He played the chain store game harder and better than anyone else. [Sam] Walton invented practically nothing. But he copied everything anybody else ever did that was smart—and he did it with more fanaticism and better employee manipulation. So he just blew right by them all.

If it’s a pure commodity like airline seats, you can understand why no one makes any money.

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 he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.

That’s such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers.

The cost reductions came through, all right. But the benefit of the cost reductions didn’t go to the guy who bought the equipment. It’s such a simple idea. It’s so basic. And yet it’s so often forgotten.

them. At any rate, surfing is a very powerful model.

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. And that’s as close to certain as any prediction you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.

So some edges can be acquired. And the game of life, to some extent, for most of us, is trying to be something like a good plumbing contractor in Bemidji.

They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.

the behavior are incentives for the decision maker, and getting the incentives right is a very, very important lesson.

Finally, somebody got the idea to pay all these people not so much an hour but so much a shift, and when it’s all done, they can all go home. Well, their problems cleared up overnight.

Even with a 10 percent per annum investment, paying a 35 percent tax at the end gives you 8.3 percent after taxes as an annual compounded result after 30 years. In contrast, if you pay the 35 percent each year instead of at the end, your annual result goes down to 6.5 percent. So you add nearly 2 percent of after tax return per annum if you only achieve an average return by historical standards from common stock investments in companies with low dividend payout ratios.

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.

Don’t sell anything you wouldn’t buy yourself. Don’t work for anyone you don’t respect and admire. Work only with people you enjoy.

Have low expectations. Have a sense of humor. Surround yourself with the love of friends and family. Above all, live with change and adapt to it. If the world didn’t change, I’d still have a 12 handicap.

How do you get worldly wisdom? What system do you use to rise into the tiny top percentage of the world in terms of having sort of an elementary, practical wisdom?

As I said at the USC Business School, what you need is a latticework of mental models in your head. And you hang 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 to fit together in a way that enhances cognition.

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.

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. Oddly

And that’s based on the elementary mathematics of compound interest, which is one of the most important models there is on earth.

This history shows the enormous incentive you create if you give a guy a trademark.

And that gets into another lesson in worldly wisdom: If ideology can screw up the head of Chomsky, imagine what it does to people like you and me.

However, there were also quite a few other psychological principles, all operating in the same direction, that achieved that lollapalooza effect precisely because they acted in combination toward the same end.

And you especially need them when four or five forces from these models come together to operate in the same direction. In such cases, you often get lollapalooza effects—which can make you rich, or they can kill you. So it’s essential that you beware of lollapalooza effects.

So here’s what he did: Officers ate at one place where the men could observe them. And for a long time, he served sauerkraut to the officers but not to the men. And then, finally, Captain Cook said, “Well, the men can have it one day a week.” In due course, he had the whole crew eating sauerkraut.

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. So if you run a business where it’s easy to steal because of your methods, you’re working a great moral injury on the people who work for you.

Again, that’s obvious. It’s very, very important to create human systems that are hard to cheat. Otherwise, you’re ruining your civilization, because these big incentives will create incentive-caused bias and people will rationalize that bad behavior is okay.

“What can I do to ruin our civilization?” That’s easy. If what you want to do is to ruin your civilization, just go to the legislature and pass laws that create systems wherein people can easily cheat. It will work perfectly.

When people get bad news, they hate the messenger. Therefore, it was very hard for the union representative to tell all of these people that the easy money was about to stop.

Not all of what you know how to do should you use to manipulate people.

So it takes a mispriced opportunity that we’re smart enough to recognize.

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

Failure to handle psychological denial is a common way for people to go broke. You’ve made an enormous commitment to something. You’ve poured effort and money in. And the more you put in, the more the whole consistency principle makes you think, “Now it has to work. If I put in just a little more, then it’ll work.”

“I can afford to write this one off and live to fight again. I don’t have to pursue this thing as an obsession, in a way that will break me.”

And just as Coke could prosper when refrigeration came, when the videocassette was invented, Disney didn’t have to invent anything or do anything except take the thing out of the can and stick it on the cassette.

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. What could possibly be more useful in life than that?

When you don’t know and you don’t have any special competence, don’t be afraid to say so.

Good literature makes the reader reach a little for understanding. Then it works better. You hold it better. It’s the commitment and consistency tendency. If you’ve reached for it, the idea’s pounded in better.

Therefore, instead of being persuaded, he’s more likely to react with “Who in the hell are you to establish the moral code of the whole world?” But instead, you can say to him, “You can’t do that without three other people beneath you knowing about it. Therefore, you’re making yourself subject to blackmail. You’re risking your reputation. You’re risking your family, your money,” etc. That is likely to work. And you’re telling him something that’s true.

like the Navy system. If you’re a captain in the Navy and you’ve been up for 24 hours straight and have to go to sleep, and you turn the ship over to a competent first mate in tough conditions and he takes the ship aground, clearly through no fault of yours, they don’t court-martial you, but your naval career is over.

“Everything should be made as simple as possible, but no more simple.”

I get requests for pointers to easy learning all the time. I’m trying to provide a little easy learning today. But one talk like this is not the right way to do it. The right way to do it would be in a book.

And given academic inertia, all academic deficiencies are very hard to fix.

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’s50 conclusion that scientific reality is often revealed only by math as if math was the language of God.

The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse,

The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there 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.

We can see from the introductory course in psychology that, in essence, we are going into the business of creating and maintaining conditioned reflexes. The Coca-Cola trade name and trade dress will act as the stimuli, and the purchase and ingestion of our beverage will be the desired responses.

The operant conditioning part of our problem is easy to solve. We need only 1) maximize rewards of our beverage’s ingestion and 2) minimize possibilities that desired reflexes, once created by us, will be extinguished through operant conditioning by proprietors of competing products.

Wanting a lollapalooza result, we will naturally include rewards in all the categories.

We must next consider the Pavlovian conditioning we must also use. In Pavlovian conditioning, powerful effects come from mere association. The neural system of Pavlov’s dog causes it to salivate at the bell it can’t eat. And the brain of man yearns for the type of beverage held by the pretty woman he can’t have.

as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other things consumers like or admire.

And this outcome, along with other volume-creates-power effects, should help us gain and hold at least 50 percent of the new market everywhere.

Well, there is that powerful “monkey see, monkey do” aspect of human nature that psychologists often call social proof. Social proof—imitative consumption triggered by mere sight of consumption—will not only help induce trial of our beverage, it will also bolster perceived rewards from consumption.

much Pavlovian conditioning, 2) powerful social proof effects, and 3) a wonderful-tasting, energy-giving, stimulating, and desirably cold beverage that causes much operant conditioning, we are going to get sales that speed up for a long time by reason of the huge mixture of factors we have chosen. Therefore, we are going to start something like an autocatalytic reaction in chemistry—precisely the sort of multifactor-triggered lollapalooza effect we need.

After all, the correct strategies are clear after being related to elementary academic ideas brought into play by the helpful notions.

This will happen because the Darwinian approach, with its habitual objectivity taken on as a sort of hair shirt, is a mighty approach indeed. 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.

“The company that needs a new machine tool and hasn’t bought it is already paying for it.”

For instance, led by our classmate Roger Fisher, 60 the law schools brought in negotiation, drawing on other disciplines. Over 3 million copies of Roger’s wise and ethical negotiation book have now been sold, and his life’s achievement may well be the best, ever, from our whole class. The law schools also brought in a lot of sound and useful economics, even some good game theory to enlighten antitrust law by better explaining how competition really works.

Dr. [Samuel] Johnson so wisely observed, truth is hard to assimilate in any mind when opposed by interest.

“What a man wishes, he will believe.”

“The first principle is that you must not fool yourself, and you’re the easiest person to fool.”

I have more than skepticism regarding the orthodox view that huge diversification is a must for those wise enough, so that indexation is not the logical mode for equity investment. I think the orthodox view is grossly mistaken.

Assume some 63-year-old dentist has $ 1 million in GE stock in a private pension plan. The stock goes up in value to $ 2 million, and the dentist, feeling flush, trades in his very old Chevrolet and leases a new Cadillac at the giveaway rate now common. To me, this is an obvious large wealth effect in the dentist’s spending.

If a foundation or other investor wastes 3 percent of assets per year in unnecessary, nonproductive investment costs in managing a strongly rising stock portfolio, it still feels richer, despite the waste, while the people getting the wasted 3 percent, febezzlers though they are, think they are virtuously earning income.

And I also think that one should recognize reality even when one doesn’t like it—indeed, especially when one doesn’t like it.

Even in pure mathematics, they can’t remove all paradox, and the rest of us should also recognize we are going to have to endure a lot of paradox, like it or not.

“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.

first place in some less fundamental way. The ethos of hard science is so strong in favor of reductionism to the more fundamental body of knowledge that you can wash the discoverer right out of history when somebody else handles his discovery in a more fundamental way. I think that is correct.

I found laid out as principles of economics: Opportunity cost is a superpower, to be used by all people who have any hope of getting the right answer. Also, incentives are superpowers. And lastly, the tragedy of the commons model,

Well, practically everybody 1) overweighs the 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. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that.

Extreme success is likely to be caused by some combination of the following factors: Extreme maximization or minimization of one or two variables. Example, Costco or our furniture and appliance store. 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. And, of course, I’ve been searching for lollapalooza results all my life, so I’m very interested in models that explain their occurrence. An extreme of good performance over many factors. Example, Toyota or Les Schwab. Catching and riding some sort of big wave. Example, Oracle. By the way, I cited Oracle before I knew that the Oracle CFO [Jeff Henley] was a big part of the proceedings here today.

The second interesting problem with synthesis involves two of the most famous examples in economics. Number one is [David] Ricardo’s79 principle of comparative advantage in trade, and the other is Adam Smith’s pin factory. 80 And

Obviously, that’s an interaction of Ricardo and the pin factory examples. The odd system that this guy had designed to amuse seniors was pure pin factory, and finding the guy with this system was pure Ricardo. So these things are interacting.

Now, why did Max Planck, one of the smartest people who ever lived, give up economics? The answer is, he said, “It’s too hard. The best solution you can get is messy and uncertain.”

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.

Keynes: Better roughly right than precisely wrong.

Just as civilization can progress only when it invents the method of invention, you can progress only when you learn the method of learning.

My advice to you is to be better than I was at keeping insights hidden.

Let me use a little inversion now. What will really fail in life? What do we want to avoid? Some answers are easy. For example, sloth and unreliability will fail. If you’re unreliable, it doesn’t matter what your virtues are, you’re going to crater immediately.

I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.

I think the game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines.

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.

if they paid the employees per shift and let all night shift employees go home when all the planes were loaded, the system would work better. And, lo and behold, that solution worked.

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.

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—

Widespread incentive-caused bias requires that one should often distrust or take with a grain of salt the advice of one’s professional adviser, even if he is an engineer. The general antidotes here are: 1) Especially fear professional advice when it is especially good for the adviser, 2) learn and use the basic elements of your adviser’s trade as you deal with your adviser, and 3) double-check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought.

Skinner so well knew, bad behavior is intensely habit-forming when it is rewarded.

Money rewards are also intertwined with other forms of reward. For instance, some people use money to buy status, and others use status to get money, while still others sort of do both things at the same time.

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 nonmonetary items.

Granny’s rule, to be specific, is the requirement that children eat their carrots before they get dessert. The business version requires that executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks.

Given reward superpower, this practice is wise and sound. Moreover, the rule can also be used in the non-business part of life. The emphasis on daily use of this practice is not accidental. The consultants well know, after the teaching of Skinner, that prompt rewards work best.

The human mind tends strongly toward the same sort of result. And so, people tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong.

As he was rising from obscurity in Philadelphia and wanted the approval of some important man, Franklin would often maneuver that man into doing Franklin some unimportant favor, like lending Franklin a book. Thereafter, the man would admire and trust Franklin more because a non-admired and non-trusted Franklin would be inconsistent with the appraisal implicit in lending Franklin the book.

For instance, when an automobile salesman graciously steers you into a comfortable place to sit and gives you a cup of coffee, you are very likely being tricked, by this small courtesy alone, into parting with an extra $ 500.

With luxury goods, the process works with a special boost because buyers who pay high prices often gain extra status from thus demonstrating both their good taste and their ability to pay.

To avoid being misled by the mere association of some fact with past success, use this memory clue. Think of Napoleon and Hitler when they invaded Russia after using their armies with much success elsewhere. And there are plenty of mundane examples of results like those of Napoleon and Hitler.

The proper antidotes to being made such a patsy by past success 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 the odds 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.

Influence-from-mere-association tendency often has a shocking effect that helps swamp the normal tendency to return favor for favor. Sometimes, when one receives a favor, his condition is unpleasant, due to poverty, sickness, subjugation, or something else. In addition, the favor may trigger an envy-driven dislike for the person who was in so favorable a state that he could easily be a favor giver. Under such circumstances, the favor receiver, prompted partly by mere association of the favor giver with past pain, will not only dislike the man who helped him but also try to injure him.

the endowment effect. All man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.

Let us consider some foolish gambling decisions. In lotteries, the play is much lower when numbers are distributed randomly than when the player picks his own number. This is quite irrational. The odds are almost exactly the same and much against the player. Because state lotteries take advantage of man’s irrational love of self-picked numbers, modern man buys more lottery tickets than he otherwise would have, with each purchase foolish.

Intensify man’s love of his own conclusions by adding the possessory wallop from the endowment effect and you will find that a man who has already bought a pork-belly future on a commodity exchange now foolishly believes even more strongly than before in the merits of his speculative bet.

foolish sports betting by people who love sports and think they know a lot about the relative merits of teams is a lot more addictive than racetrack betting, partly because of man’s automatic over-appraisal of his own complicated conclusions.

More counterproductive yet are man’s appraisals, typically excessive, of the quality of the future service he is to provide to his business. His over-appraisal of these prospective contributions will frequently cause disaster.

The correct antidote to this sort of folly is to underweigh face-to-face impressions and overweigh the applicant’s past record.

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 morale; 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. This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.

In displaying deprival-superreaction tendency, man frequently incurs disadvantage by misframing his problems. He will often compare what is near instead of what really matters. For instance, a man with $ 10 million in his brokerage account will often be extremely irritated by the accidental loss of $ 100 out of the $ 300 in his wallet.

Second, the most addictive forms of gambling provide a lot of near misses, and each one triggers deprival-superreaction tendency. Some slot machine creators are vicious in exploiting this weakness of man. Electronic machines enable these creators to produce a lot of meaningless bar-bar-lemon results that greatly increase play by fools who think they have very nearly won large rewards.

For instance, what simpler way could there be to find out how to walk to a big football game in a strange city than by following the flow of the crowd? 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.

This makes it wise for parents to rely more on manipulating the quality of the peers than on exhortations to their own offspring.

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. Thus, the inaction of a great many bystanders led to the death of Kitty Genovese in a famous incident much discussed in introductory psychology courses.

Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.

Few psychological tendencies do more damage to correct thinking. Small-scale damages involve instances such as man’s buying an overpriced $ 1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of a $ 65,000 car.

Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny.

He found that 1) he could classify dogs so as to predict how easily a particular dog would break down, 2) the dogs hardest to break down were also the hardest to return to their pre-breakdown state, 3) any dog could be broken down, and 4) he couldn’t reverse a breakdown except by reimposing stress.

An idea or a fact is not worth more merely because it is easily available to you.

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 as 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.

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.

This sort of unfortunate byproduct of reason-respecting tendency is a conditioned reflex