Author Topic: Munger and Psychology of Misjudgment COBF Class idea  (Read 2650 times)

longinvestor

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Re: Munger and Psychology of Misjudgment COBF Class idea
« Reply #20 on: May 28, 2020, 01:31:13 PM »
Buffett’s favorites:

- The compensation consultant role in recommending true performance based compensation for the CEO
- many 100k’s or millions in BOD fees for “independent” directors for whom being on such boards is their livelihood.




SharperDingaan

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Re: Munger and Psychology of Misjudgment COBF Class idea
« Reply #21 on: May 28, 2020, 02:53:23 PM »
In many firms it is common to return to work on January 02; to find multiple trailers in your yard - full of items your firm did not order. They are there because the sellers agent cleared out their warehouse as at midnight Dec-31, in order to inflate the prior years sales figures and their 'gateway' driven bonus (total YTD volume x higher rate). January 02, the selling agent 'bribes' the firms buyer to take the delivery and not return it - via steep price discounts; and the the firms treasurer to finance the purchase - via a deep discount for early payment. Press the agent and you'll be told that he/she is just 'priming the pump' - reciprocal selling.

Entirely incentive driven, but essentially a wash over the full year.

SD

LongHaul

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Re: Munger and Psychology of Misjudgement COBF Class idea
« Reply #22 on: May 28, 2020, 06:46:51 PM »
Becoming an expert in a field X to overcome incentives of the salesperson in field X is a possible solution, but it's also a costly solution. To take the OP example, you'll never be a real dentist (unless you go to dentist school ;)). You might be able to bullshit a level-1 dental procedure salesperson, but you won't be able to bullshit level-2 one. Also there is a risk: what if they agree with you that procedure is unnecessary (because they are level-1 in sales or because they don't want to argue), but then you discover in couple months that instead of a cheaper filling you now have to do a root canal or crown? Are you gonna seek second opinion? Are you gonna read dental x-rays yourself?

Ultimately, this is IMO not an easily resolvable problem apart from simple or (obviously) scammy situations. It is tough to know if:
1. The salesperson is just pushing unneeded product/service because of incentives.
2. They really think you need this product/service
3. They are misinformed and think that you need this product/service
and on your side
4. You really don't need this product/service
5. You are misinformed and need this product/service

-------------------------------------

Another subtopic is self-incentives or pros/cons for decisions (this goes a bit above just incentives).
There's a popular advice to write pros/cons for some decision (financial or not) to ease making the decision. The issue there is that sometimes the pros/cons are difficult to measure, evaluate, and compare. To take LC's example, moving to Denver from NYC would probably fill pages of pros and cons on a paper. How would one evaluate and weigh each of these? Even in a simpler case, how much one would value extra half hour commute vs. $XX cheaper or YY-sqft bigger house? People make these decisions, but I'd say they are mostly hand-waved even if they try to make a rational weighted decision. And BTW hand-waved or emotional decisions might be better than 10-spreadsheet ones...  ::)

There are costs to figuring out if something is a good value and necessary.  Depends on situation if worth it.  But either way one is going to pay because if you are unwilling to do the work then more likely to get taken.

One trick is to just ask questions and get different opinions.  Mechanics will often give different opinions than service advisors.  Different Doctors may have different views, etc.  I actually enjoy sniffing out BS and learning.  Also - once you find a trusted service person - stick with them like glue.

Ben Franklin had an ingenious method for making a decision in a more rational manner.   I think it was taking a piece of paper, folding it in half and then writing the pros and cons of the decision and putting a numerical value next to it over a few days.  Then he could weigh each side and make a decision.   

LongHaul

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4. Doubt-Avoidance Tendency
« Reply #23 on: June 06, 2020, 04:02:55 PM »
4. Doubt-Avoidance Tendency
The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do. And so man’s Doubt-Avoidance Tendency is quite consistent with the history of his ancient, nonhuman ancestors.

Being able to jump to conclusions comes in handy when chased by a man-eater. It’s less so when the instinctual need to run kicks in during a market crash.

But then there’s doubt in general, that can lead to added stress and anxiety around decisions. That can lead to putting off a decision entirely.

I would add that saying "I don't know can also be difficult to say/admit."  but if we put aside our egos that is often the best answer.

Antidote:  Thinking of how much we really know, may not know and leaving open the conclusion to disconfirming information until we get the right information. 

Thoughts? Stories?

DooDiligence

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Re: 4. Doubt-Avoidance Tendency
« Reply #24 on: June 07, 2020, 07:18:55 AM »
4. Doubt-Avoidance Tendency
The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do. And so man’s Doubt-Avoidance Tendency is quite consistent with the history of his ancient, nonhuman ancestors.

Being able to jump to conclusions comes in handy when chased by a man-eater. It’s less so when the instinctual need to run kicks in during a market crash.

But then there’s doubt in general, that can lead to added stress and anxiety around decisions. That can lead to putting off a decision entirely.

I would add that saying "I don't know can also be difficult to say/admit."  but if we put aside our egos that is often the best answer.

Antidote:  Thinking of how much we really know, may not know and leaving open the conclusion to disconfirming information until we get the right information. 

Thoughts? Stories?

I think this has contributed to the popularity of questionable media outlets, including hyped up financial news / analysis.

People are lazy and like to have difficult things explained to them (religion, politics, finance) & will accept most of what comes from pretty pundits at face value.

Then again, what do I know?
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