11. Simple, Pain-Avoiding Psychological Denial This is the human tendency to distort reality to avoid pain. When facts are too uncomfortable or challenge deeply held beliefs, we often deny or reinterpret them to reduce cognitive and emotional distress.
Munger points out that this tendency can have severe consequences in areas like investing or leadership. For example, executives may ignore failing product lines or early signs of crisis because acknowledging them would create psychological discomfort or reputational damage.
Avoidance Strategy: Build emotional resilience to face uncomfortable truths. Encourage a culture of candor. Regularly ask, “What am I pretending not to know?” Surround yourself with people who are not afraid to challenge you.
12. Excessive Self-Regard Tendency: People consistently overestimate their own abilities, virtues, and intelligence. This overconfidence leads to poor decisions, especially in leadership, investing, and entrepreneurship.
Munger reminds us that almost everyone thinks they’re above average — a statistical impossibility. This bias is dangerous because it blinds us to our limitations and makes us dismiss feedback and warnings.
Avoidance Strategy: Practice humility. Use data, not gut feelings, to evaluate performance. Seek honest feedback. Remember the phrase: “You are not as smart as you think, but you can be wiser than most if you recognize that.”
13. Overoptimism Tendency Closely related to excessive self-regard, overoptimism is the tendency to believe that things will turn out better than is statistically justified.
Entrepreneurs, investors, and salespeople are particularly vulnerable to this bias. While some optimism is necessary for bold action, unchecked optimism leads to underestimating risks and overcommitting resources.
Avoidance Strategy: Balance optimism with realism. Use checklists and worst-case scenario planning. Validate assumptions with hard data. Invite “devil’s advocate” perspectives before making big commitments.
14. Deprival-Superreaction Tendency: Humans react disproportionately to the loss of something they once possessed, even if they didn’t value it highly beforehand. This is the emotional core of “loss aversion.”
Munger uses the example of people fighting bitterly to avoid giving up trivial perks or defending unprofitable business units. The perceived loss feels greater than the objective value of what’s being given up.
Avoidance Strategy: Reframe losses as trade-offs. Use cost-benefit analysis. Ask yourself, “Would I buy this again today if I didn’t already own it?” Consider the sunk cost fallacy before defending anything out of emotional attachment.
15. Social-Proof Tendency: Humans tend to follow the behavior of the crowd, especially under conditions of uncertainty or stress. This herd behavior can be useful for survival but disastrous in complex decision-making.
Munger illustrates this with economic bubbles, cults, and professional groupthink. Even intelligent people fall for social proof when surrounded by peers taking irrational actions, like the dot-com bubble or housing crash.
Avoidance Strategy: Cultivate independent thinking, look for contrarian evidence, and train yourself to ask, “What if everyone is wrong?” Use mental models and principles, not popularity, to guide decisions.
16. Contrast-Misreaction Tendency: Humans perceive differences rather than absolutes. This can lead to misjudgments when decisions are made based on relative comparisons instead of objective evaluation.
For example, a product might seem like a good deal only because it’s next to a much more expensive one. Or someone might seem highly competent only in contrast to a poor performer.
Avoidance Strategy: Evaluate situations based on absolute merit. Ask: “Would I choose this if I didn’t know the alternative?” Use benchmarks and independent metrics instead of comparative impressions.
17. Stress-Influence Tendency: Stress can significantly distort cognition. Moderate stress may enhance focus, but excessive stress leads to poor decisions and impulsive behavior.
Munger draws parallels from biology, where extreme environmental pressure often results in erratic, non-optimal behavior in animals, and humans are no different. Under stress, we may fall back on instinctive but irrational responses.
Avoidance Strategy: Improve self-awareness of your stress triggers. Use breathing techniques, meditation, or time buffers before making important decisions. In organizations, separate high-stakes choices from high-stress moments.
18. Availability-Misweighing Tendency People give undue weight to information that is recent, vivid, or emotionally striking. If something is more mentally available, we assume it’s more probable or relevant, even if that’s not the case.
This is why people fear flying more than driving after hearing about a plane crash, despite driving being statistically more dangerous. Media and anecdotes are often misled by this bias.
Avoidance Strategy: Use statistical data over anecdotes. Maintain a database or reference point for important recurring decisions. Ask: “Am I reacting to what’s memorable or what’s measurable?”
19. Use-It-or-Lose-It Tendency: Cognitive and physical skills atrophy when not practiced. This bias manifests as a natural tendency to forget, disengage, or become obsolete unless actively exercised.
Munger likens this to the muscles or the brain—whatever faculties you stop using will fade over time. This is especially true for numeracy, memory, and logic.
Avoidance Strategy: Apply your mental models regularly. Teach others what you know to reinforce your knowledge. Take on intellectually demanding tasks and continuously learn across disciplines.
20. Drug-Misinfluence Tendency Substances like alcohol, caffeine, or medication can impair or modify behavior, perception, and judgment. Even legal drugs can produce misjudgments when their effects are misunderstood or underestimated.
Munger emphasizes that addiction and substance abuse are major causes of ruin, both professionally and personally. They not only affect decision-making but also distort long-term priorities.
Avoidance Strategy: Understand the impact of substances on your thinking. Avoid making critical decisions under the influence of stimulants or depressants. Encourage sobriety and clarity of mind, especially in leadership roles.
