Seeking Wisdom · From Darwin to Munger by Bevelin, Peter -- Read -- Imperial Library of Trantor

Index

Seeking Wisdom: From Darwin to Munger Jacket Riddler Acknowledgments INTRODUCTION

The Second Edition The Third Edition

Part One: What influences our thinking?

Our anatomy sets the limits for our behavior

What we feel and think depends on neural connections Interaction and flexibility characterize our biological functions Neural connections are shaped by life experiences Behavior is influenced by our state of mind

Evolution selected the connections that produce

Mutations cause variations Natural selection Darwin made the following three observations: The evidence for evolution Guidance through values and life experiences The hunter-gatherer environment has formed our basic nature

Adaptive behavior for survival and reproduction

The individual comes first Often cooperation is in our best interest A tendency for fear Seeking explanations Making fast classifications Males and females have different priorities The Social Animal Much of our psychology is the result of cultural influences Our basic nature Some decisions are not in our best interest

The psychology of misjudgments

Misjudgments explained by psychology Psychological reasons for mistakes

i. Mere Association Keep in mind 2. Reward and Punishment Keep in mind 3. Self-interest and Incentives Keep in mind 4. Self-Serving Tendencies and Optimism Keep in mind $. Self-deception and Denial Keep in mind 6. Consistency Keep in mind 7. Deprival Syndrome Keep in mind 8. Status Quo and Do-Nothing Syndrome Keep in mind 9. Impatience io. Envy and Jealousy Keep in mind ii. Contrast Comparison Keep in mind 12. Anchoring Keep in mind 13. Vividness and Recency Keep in mind 14. Omission and Abstract Blindness Keep in mind 15. Reciprocation Keep in mind 16. Liking and Social Acceptance Keep in mind 17. Social Proof Keep in mind 18. Authority Keep in mind 19. Sensemaking Keep in mind 20. Reason-respecting Keep in mind 21. Believe First and Doubt Later Keep in mind 22. Memory Limitations Keep in mind 23. Do-something Syndrome 24. Say-something Syndrome Keep in mind 25- Emotions Keep in mind 26. Stress Keep in mind 27. Pain, Chemicals and Diseases 28. Multiple Tendencies Contextual Influences Some Final Advice From Charles Munger

The physics and mathematics of

1. Systems thinking 2. Scale and limits 3. Causes 4. Numbers and their meaning 5. Probabilities and number of possible outcomes 6. Scenarios 7. Coincidences and miracles 8. Reliability of case evidence 9. Misrepresentative evidence Systems thinking

Wanted and unwanted consequences The whole system The reaction of others The winner’s curse Predictions

Scale and limits

Scale of size and time Breakpoints, critical thresholds and limits Breakpoints, critical thresholds and limits Size and frequency Constraints Large effects Random events Acting on symptoms Multiple causes Mistaking correlation for cause Alternative explanations Selective data and appropriate comparisons

Numbers and their meaning

Use basic math to count, quantify, and understand relationships The effect of exponential growth The time value of money

Probabilities and number of possible outcomes

Number of possible outcomes Low frequency events Mathematical expectation Chance has no memory Controlling chance events Gains, losses and utility The consequences of low frequency events The consequences of being wrong Systems construction and planning processes Systems failure and accidents Safety factor

Coincidences and miracles

Coincidences Making up causes for chance events Believing in miracles

Reliability of case evidence

Prior probabilities

Misrepresentative evidence

Conditions, environments and circumstances change The single case or unrepresentative samples Chance and performance Ignoring failures Variability Effects of regression Post Mortem Models of reality What characterizes a useful model? Considering many ideas help us achieve a holistic view How can we learn an idea so it sticks in our memory? Search for explanations Ask “What happens?”

Simplification

Simplify the way we do things Avoid certain things Focus leads to understanding and efficiency Focus on what you can know and that makes a difference Ask the right questions Patience

Rules and filters

Filters Elimination Checklist procedures

Alternatives

Opportunity cost

Consequences Quantification

The methods of science Finding evidence from the past Falsify and disprove

Backward thinking

A fool and his money are soon parted The consequences of being wrong Margin of safety Life is long if we know how to use it Be honest Act as an exemplar Treat people fairly Don’t take life too seriously Have reasonable expectations Live in the present Be curious and open-minded. Always ask “why” The End

Charles T. Munger Harvard School

Prescriptions for Guaranteed Misery in Life

Wisdom from Charles T. Munger and Warren E. Buffett

On how to change people On some reasons to why managers don’t make rational decisions On the difficulty of replacing a CEO On the kind of people we should do business with On picking up the right character traits On overconfidence On some reasons to why bad lending happen so often On the value of math On advantages of scale On disadvantages of scale On how to get worldly wisdom On what something really mean On 3 timeless ideas for investing On how to evaluate businesses On commodity businesses On paying cash out or keeping it in the business On how to avoid problems On the real risk of investing On the difficulty of developing a fair social system Definitions How do we decide the probability of an event? The logical way Relative frequency Subjective probability Rules of probability Counting possible outcomes The binomial distribution Calculations to some of the examples Use notions What is the issue? Understand what it means Filters and Rules What do I specifically and measurable want to achieve and avoid and when and why? What is the cause of that? What available alternatives do I have to achieve my goal? What are the consequences? Bias The hypothesis Look for evidence and judge the evidence Disprove my (or others) conclusion by thinking like a prosecutor What is the downside? What are the consequences if I am wrong? What is the value? What yardstick can be used to measure progress or to measure things against? How act now? Have I made an active decision? Post mortem or learning from mistakes What exactly is the problem? What are the likely consequences What is causing me to do this? What is the context? Can I judge him? What is in his self-interest to do? What are the psychological tendencies and shortcuts that influence him and can cause misjudgment? What are the consequences? What system would I like to have if the roles were reversed? Is this the right system? Business evaluation Filter 1 - Can I understand the business — predictability? Filter 2 - Does it look like the business has some kind of sustainable competitive advantage? Filter 3 - Able and honest management? Filter 4 — Is the price right? Filter 5 — Disprove Filter 6 - What are the consequences if I’m wrong?

Source Notes Bibliography

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